2023 Year-End Planning


Prepay Expenses Using the IRS Safe Harbor

You have to thank the IRS for its tax-deduction safe harbors.

IRS regulations contain a safe-harbor rule that allows cash-basis taxpayers to prepay and deduct qualifying expenses up to 12 months in advance without challenge, adjustment, or change by the IRS.

Under this safe harbor, your 2023 prepayments cannot go into 2024. This makes sense because, under the safe-harbor rule, you can prepay only 12 months of qualifying expenses.

For a cash-basis taxpayer, qualifying expenses include lease payments on business vehicles, rent payments on offices and machinery, and business and malpractice insurance premiums.

Example. You pay $3,000 monthly rent and would like a $36,000 deduction this year. So, on Friday, December 29, 2023, you mail a rent check for $36,000 to cover all of your 2024 rent.

Your landlord received the payment on Tuesday, January 2, 2024. Here are the results:

  • You deduct $36,000 in 2023 (the year you paid the money).
  • The landlord reports a taxable income of $36,000 in 2024 (the year he received the money).

You get what you want—the deduction for this year, 2023.

The landlord gets what he wants—next year’s entire rent in advance, eliminating any collection problems while keeping the rent taxable in the year he expects it to be taxable.

Stop Billing Customers, Clients, and Patients

Here is one rock-solid, straightforward strategy to reduce your taxable income for this year: stop billing your customers, clients, and patients until after December 31, 2023. (We assume here that you or your corporation is on a cash basis and operates on the calendar year.)

Customers, clients, and insurance companies generally don’t pay until billed. Not billing customers and clients is a time-tested tax-planning strategy that business owners have used successfully for years.

Example. Jake, a dentist, usually bills his patients and the insurance companies at the end of each week. This year, however, he sends no bills in December. Instead, he gathers and mails those bills the first week of January. Presto! He postponed paying taxes on his December 2023 income by moving that income to 2024.

Buy Office Equipment

With bonus depreciation now at 80 percent and increased limits for Section 179 expensing, buy your equipment or machinery and place it in service before December 31. Then, use either the 80% Bonus depreciation or 100 percent expensing under Section 179 of the total cost in 2023. You could use a combination of both; however, expensing 179 is first, then bonus depreciation next, so you would not get 100 percent of the cost deductible in 2023.

Qualifying bonus depreciation and Section 179 purchases include new and used personal property such as machinery, equipment, computers, desks, chairs, and other furniture (and certain qualifying vehicles).

Use bonus depreciation first, then expense the balance under Code Sec 179. In 2024, bonus depreciation will drop to 60 percent.

Use Your Credit Cards

If you are a single-member LLC or sole proprietor filing Schedule C for your business, the day you charge a purchase to your business or personal credit card is the day you deduct the expense. Therefore, as a Schedule C taxpayer, you should consider using your credit card for last-minute purchases of office supplies and other business necessities.

If you operate your business as a corporation, and the corporation has a credit card in the corporate name, the same rule applies: the date of charge is the date of the deduction for the corporation.

But suppose you operate your business as a corporation and are the personal owner of the credit card. In that case, the corporation must reimburse you if you want the corporation to realize the tax deduction, which happens on the reimbursement date. Thus, submit your expense report and have your corporation reimburse you before midnight on December 31.

Don’t Assume You Are Taking Too Many Deductions

If your business deductions exceed your business income, you have a tax loss for the year. With a few modifications to the loss, tax law calls this a “net operating loss,” or NOL.

If you are starting your business, you could possibly have a Net Operating Loss (NOL). You could have a loss year even with an ongoing successful business.

You used to be able to carry back your NOL for two years and get immediate tax refunds from prior years, but the Tax Cuts and Jobs Act (TCJA) eliminated this provision. Now, you can only carry your NOL forward, and it can only offset up to 80 percent of your taxable income in any one future year.

What does this all mean? Never stop documenting your deductions, and always claim all your rightful deductions. We have spoken with far too many business owners, especially new owners, who don’t claim all their deductions when those deductions would produce a tax loss.

Deal with Your Qualified Improvement Property (QIP)

Congress finally fixed the CARES Act’s qualified improvement property (QIP) error when enacting the TCJA.

QIP is any improvement you make to the interior portion of a building you own that is non-residential real property (think office buildings, retail stores, and shopping centers)—if you place the improvement in service after the date you place the building in service.

The big deal: QIP is not a real property you depreciate over 39 years. QIP is a 15-year property, eligible for immediate deduction using either 80 percent bonus depreciation or 100 percent Section 179 expensing. To get the QIP deduction in 2023, you must place the QIP in service on or before December 31, 2023.

Planning note. If you have QIP property on an already filed 2020 return that you did not amend, it’s on that return as a 39-year property. You need to fix that, which will likely add some cash to your bank account by making the fix.

Last-Minute Year-End Tax Strategies for Your Stock Portfolio

When you take advantage of the tax code’s offset game, your stock market portfolio can represent a little gold mine of opportunities to reduce your 2023 income taxes.

The tax code contains the basic rules for this game, and once you know the rules, you can apply the correct strategies.

Here’s the basic strategy:

  • Avoid the high taxes (up to 40.8 percent) on short-term capital gains and ordinary income.
  • Lower the taxes to zero—or if you can’t do that, lower them to 23.8 percent or less by making the profits subject to long-term capital gains.

Think of this: You are paying taxes at a 71.4 percent higher rate when you pay at 40.8 percent rather than the tax-favored 23.8 percent.

To avoid higher rates, here are seven possible tax planning strategies:

Strategy 1

Examine your portfolio for stocks you want to unload and make sales where you offset short-term gains subject to a high tax rate, such as 40.8 percent, with long-term losses (a rate of up to 23.8 percent).

In other words, make the high taxes disappear by offsetting them with low-taxed losses and pocket the difference.

Strategy 2

Use long-term losses to create the $3,000 deduction allowed against ordinary income.

Again, you are trying to use the 23.8 percent loss to kill a 40.8 percent rate of tax (or a 0 percent loss to kill a 12 percent tax if you are in the 12 percent or lower tax bracket).

Strategy 3

As an individual investor, avoid the wash-sale loss rule.

Under the wash-sale loss rule, if you sell a stock or other security and then purchase substantially identical stock or securities within 30 days before or after the date of sale, you don’t recognize your loss on that sale. Instead, the IRS code makes you add the loss amount to the basis of your new stock.

If you want to use the loss in 2023, you’ll have to sell the stock and sit on your hands for more than 30 days before repurchasing that stock.

Strategy 4

If you have lots of capital losses or capital loss carryovers and the $3,000 allowance is looking extra tiny, sell additional stocks, rental properties, and other assets to create offsetting capital gains.

If you sell stocks to purge the capital losses, you can immediately repurchase the stock after you sell it—there’s no wash-sale “gain” rule.

Strategy 5

Do you give money to your parents to assist them with their retirement or living expenses? How about children (expressly, children not subject to the kiddie tax)?

If so, consider giving appreciated stock to your parents and non-kiddie-tax children. Why? If the parents or children are in lower tax brackets than you are, you get a bigger bang for your buck by:

  • gifting them stock,
  • having them sell the stock and then
  • having them pay taxes on the stock sale at their lower tax rates.

Strategy 6

If you are going to donate to a charity, consider appreciated stock rather than cash because a donation of appreciated stock gives you more tax benefits.

It works like this:

  • Benefit 1. You deduct the fair market value of the stock as a charitable donation.
  • Benefit 2. You don’t pay any of the taxes you would have had to pay if you sold the stock.

Example. You bought a publicly traded stock for $1,000, now worth $11,000. If you give it to a 501(c)(3) charity, the following happens:

  • You get a tax deduction of $11,000.
  • You pay no taxes on the $10,000 profit.

Two rules to know:

  1. Your deductions for donating appreciated stocks to 501(c)(3) organizations may not exceed 30 percent of your adjusted gross income.
  1. If your publicly traded stock donation exceeds 30 percent, no problem. Tax law allows you to carry over the excess contribution for five years.

Strategy 7 

If you could sell a publicly traded stock at a loss, do not give that loss-deduction stock to a 501(c)(3) charity. Why? If you sell the stock, you have a tax loss that you can deduct. If you give the stock to a charity, you get no deduction for the loss—in other words, you can kiss that tax-reducing loss goodbye.

Last-Minute Year-End Medical Plan Strategies

All small-business owners with one to 49 employees should have a medical plan for their business.

Sure, it’s true that with 49 or fewer employees, the tax law does not require you to have a plan, but you should.

Most medical plan tax rules are straightforward when you have 49 or fewer employees. Here are six opportunities for you to consider:

  1. Make sure to claim the federal tax credit equal to 100 percent of the required (2020) and the voluntary (2021) emergency sick leave and emergency family leave payments. You likely made payments that qualify for the credits.
  1. If you have a Section 105 plan in place and have not been reimbursing expenses monthly, do a reimbursement now to get your 2023 deductions, and then put yourself on a monthly reimbursement schedule in 2024.
  1. If you want to implement a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), but you have not yet done so, make sure to get that done correctly now. You are late and could suffer that $50-per-employee penalty should your lateness be discovered.
  1. If you think of the QSEHRA and want to help your employees with more money and flexibility, consider the Individual Coverage Health Reimbursement Arrangement (ICHRA). It has more advantages.
  1. If you operate your business as an S corporation and want an above-the-line tax deduction for your health insurance, you need the S corporation to (a) pay for or reimburse you for the health insurance and (b) put that insurance cost on your W-2. Make sure the reimbursement happens before December 31, and you have the reimbursement set up to show on the W-2.
  1. Claim the tax credit for your employees’ group health insurance. If you provide your employees with group health insurance, see whether your pay structure and number of employees put you in a position to claim a 50 percent tax credit for some or all of the monies you paid for health insurance in 2022 and possibly in prior years.

Last-Minute Year-End Retirement Deductions

The clock continues to tick. Your retirement is one year closer.

You have time before December 31 to take steps that will help you fund the retirement you desire. Here are four things to consider:


  • Establish Your 2022 Retirement Plan

First, do you have your (or your corporation’s) retirement plan in place?

If not, and if you have some cash, you can put it into a retirement plan, get busy, and put that retirement plan in place to obtain a tax deduction for 2023.

For most defined contribution plans, such as 401(k) plans, you (the owner-employee) are both an employee and the employer, whether you operate as a corporation or a proprietorship. And that’s good because you can make both the employer and the employee contributions, allowing you to put a good chunk of money away.


  • Claim the New, Improved Retirement Plan Start-Up Tax Credit of Up to


By establishing a new qualified retirement plan (such as a profit-sharing plan, 401(k) plan, or defined benefit pension plan), a SIMPLE IRA plan, or a SEP, you can qualify for a non-

refundable tax credit that’s the greater of:

  • $500 or
  • the lesser of (a) $250 multiplied by the number of your non-highly compensated employees who are eligible to participate in the plan, or (b) $5,000.

The law bases your credit on your “qualified start-up costs.” For the retirement start-up credit, your qualified start-up costs are the ordinary and necessary expenses you pay or incur in connection with:

  • the establishment or administration of the plan, or
  • the retirement-related education of employees for such a plan.


  • Claim the New Automatic Enrollment $500 Tax Credit for Each of Three Years ($1,500 Total)

The SECURE Act added a non-refundable credit of $500 per year for up to three years, beginning with the first taxable year (2020 or later) in which you, as an eligible small employer, include an automatic contribution arrangement in a 401(k) or SIMPLE IRA plan.

The new $500 auto-contribution tax credit is in addition to the start-up credit and can apply to newly created and existing retirement plans. Further, you don’t have to spend money to trigger the credit. You need to add the auto-enrollment feature (which does contain a provision that allows employees to opt out).


  • Convert to a Roth IRA

Consider converting your 401(k) or traditional IRA to a Roth IRA.

First, you must answer this question: How much tax will you pay to convert your plan to a Roth IRA? With this answer, you now know how much cash you need to pay the extra taxes caused by the conversion to a Roth IRA.

Here are four reasons you should consider converting your retirement plan to a Roth IRA:

  1. You can withdraw the monies you put into your Roth IRA (the contributions) at any time, both tax-free and penalty-free because you invested previously taxed money into the Roth account.
  1. You can withdraw the money you converted from the traditional plan to the Roth IRA at any time, tax-free. (But if you make that conversion withdrawal within five years of the conversion, you pay a 10 percent penalty. Each conversion has its five-year period.)
  1. When you have your money in a Roth IRA, you pay no tax on qualified withdrawals (earnings), distributions taken after age 59 1/2, provided your Roth IRA is open for at least five years.
  1. Unlike with the traditional IRA, you don’t have to receive the required minimum distributions from a Roth IRA when you reach age 72, 73, or 75, or, to put this another way, you can keep your Roth IRA intact and earn money until you die. (After your death, the Roth IRA can continue earning money, but someone else will make the investment decisions and enjoy your cash.)

Last-Minute Section 199A Tax Reduction Strategies

Remember to consider your Section 199A deduction in your year-end tax planning. If you don’t, you could end up with an undesirable $0 for your deduction amount.

Below are three year-end strategy moves that could, in the right circumstances, simultaneously (a) reduce your income taxes and (b) boost your Section 199A deduction.

First Things First

If your taxable income is above $232,100 (or $464,200 on a joint return), your type of business, wages paid, and property can increase, reduce, or eliminate your Section 199A tax deduction.

If your deduction amount is less than 20 percent of your qualified business income (QBI), consider using one or more strategies described below to increase your Section 199A deduction:

Strategy 1: Harvest Capital Losses

Capital gains add to your taxable income, which is the income that:

  • determines your eligibility for the Section 199A tax deduction,
  • sets the upper limit (ceiling) on the amount of your Section 199A tax deduction and
  • establishes when you need wages and/or property for maximum deductions.

If the capital gains hurt your Section 199A deduction, you have time before the end of the year to harvest capital losses to offset those harmful gains.

Strategy 2: Make Charitable Contributions

Since the Section 199A deduction uses your Form 1040 taxable income for its thresholds, you can use itemized deductions to reduce and/or eliminate threshold problems and increase your Section 199A deduction.

Charitable contribution deductions are the easiest way to increase your itemized deductions before the end of the year (assuming you already itemize).

Gifts of appreciated stock held long-term or art, collectibles, etc., avoid capital gains tax and increase charitable deductions.

Strategy 3: Buy Business Assets

Thanks to 80 percent bonus depreciation and 100 percent Section 179 expensing, you can write off the entire cost of most assets you buy and place in service before December 31, 2023.

Bonus depreciation can help your Section 199A deduction in two ways:

  1. The big asset purchase and write-off can reduce your taxable income and increase your Section 199A deduction when it gets your taxable income under the threshold.
  1. The big asset purchase and write-off can contribute to an increased Section 199A deduction if your Section 199A deduction currently uses the calculation that includes the

2.5 percent of unadjusted basis in your business’s qualified property. In this scenario, your asset purchases increase your qualified property, increasing your Section 199A deduction.

Section 179 Expensing and Bonus Depreciation Deductions

The two business tax deductions that present the best opportunities for reducing your business’s taxable income are: a) the Section 179 deduction, where your business can elect to deduct the entire cost of certain property acquired and placed in service during the year, and b) the bonus depreciation deduction, where 100 percent of the cost of business property may be expensed.

Under the Section 179 expensing option, your business can immediately expense the cost of up to $1,160,000 of “Section 179” property placed in service in 2023. This amount is reduced dollar

for dollar (but not below zero) by the amount by which the cost of the Section 179 property placed in service during 2023 exceeds $2,700,000.

The bonus depreciation rules apply to all businesses unless the business specifically elects out of these rules. An election out might be preferable where a business expects a tax loss for the year, and the bonus depreciation would increase that loss, or it might be advantageous to push depreciation deductions into future years. For example, if the owner of a pass-thru entity to whom these deductions flow expects to be in a higher tax bracket in future years, such deductions might be of more use in those future years. When applying both the Section 179 deduction and the bonus depreciation deduction to an asset, Section 179 applies first.

If you need a vehicle for your business, purchasing a sport utility vehicle weighing over 6,000 pounds can trigger a more significant deduction than purchasing a smaller one. This is because vehicles that weigh 6,000 pounds or less are considered listed property, and the related first-year deduction is limited to $20,200 for cars, trucks, and vans acquired and placed in service in 2023. For vehicles weighing more than 6,000 pounds, however, up to $28,900 of the cost of the vehicle can be immediately expensed. For trucks between 6,000 and 14,000 pounds, bonus depreciation in the first year is 80 percent of the cost.

It’s worth noting that if you leased a passenger automobile in 2023 with a value of more than

$56,000, the deduction available for that lease expense is reduced. In such cases, you must include an amount determined by a formula the IRS issues each year in gross income.

Dividend VS. Salary

Owners of regular corporations should consider taking a dividend instead of an additional

salary. Suppose the corporation is in a lower tax bracket than the owner’s personal income tax bracket. In that case, the owner gets a preferential tax advantage on the dividend, and the corporation avoids payroll taxes. This only works with C-Corporations.

Last-Minute Year-End Tax Strategies for Marriage, Kids, and Family

Are you thinking of getting married or divorced? If yes, consider December 31, 2023, in your tax planning.

Here’s another planning question: do you give money to family or friends (other than your children, who are subject to the kiddie tax)? If so, you need to consider the zero-taxes planning strategy.

And now consider your children who are under the age of 18. Have you paid them for the work they’ve done for your business? Have you paid them the right way?

Here are five strategies to consider as we come to the end of 2023:


  • Put Your Children on Your Payroll

If you have a child under 18 and operate your business as a Schedule C sole proprietor or as a spousal partnership, you must consider having that child on your payroll. Why?

  • First, neither you nor your child would pay payroll taxes on the child’s income.
  • Second, with a traditional IRA, the child can avoid all federal income taxes on up to $17,500 of earned income.

If you operate your business as a corporation, you can still benefit by employing the child even though both your corporation and your child suffer payroll taxes.


  • Get Divorced after December 31

The marriage rule works like this: You are considered married for the entire year if you are married on December 31.

Although lawmakers have made many changes to eliminate the differences between married and single taxpayers, the joint return will work to your advantage in most cases.

Warning on alimony! The Tax Cuts and Jobs Act (TCJA) changed the tax treatment of alimony payments under divorce and separate maintenance agreements executed after December 31, 2018:

  • Under the old law, the payor deducts alimony payments, and the recipient includes the payments as income.
  • Under the new law, which applies to all agreements executed after December 31, 2018, the payor gets no tax deduction, and the recipient does not recognize income.


  • Stay Single to Increase Mortgage Deductions

Two single people can deduct more mortgage interest than a married couple can.

If you own a home with someone other than a spouse and bought it on or before December 15, 2017, you individually can deduct mortgage interest on up to $1 million of a qualifying mortgage.

For example, if you and your unmarried partner live together and own the home, your mortgage ceiling on deductions is $2 million. If you get married, the ceiling drops to $1 million.

If you and your unmarried partner bought your house after December 15, 2017, the reduced

$750,000 mortgage limit applies, and your ceiling is $1.5 million.

  1. Get Married on or before December 31

Remember, if you are married on December 31, you are married for the entire year.

If you are considering getting married in 2023, you should rethink that plan for the same reasons that apply to divorce (as described above).

You must run the numbers in your tax returns to know your tax benefits and detriments. If the numbers work out, you could quickly visit the courthouse.


  • Make Use of the 0 Percent Tax Bracket

In the old days, you used this strategy with your college students. Today, this strategy only works with that student because the kiddie tax now applies to students up to age 24.

But this strategy is good, so ask yourself: Do I give money to my parents or other loved ones to make their lives more comfortable?

If yes, is your loved one in the 0 percent capital gains tax bracket? The 0 percent capital gains tax bracket applies to a single person with less than $44,725 in taxable income and a married couple with less than $89,450.

If the parent or other loved one is in the 0 percent capital gains tax bracket, you could add to your bank account by giving this person appreciated stock rather than cash.

Example. You give Aunt Millie shares of stock with a fair market value of $20,000, for which you paid $2,000. Aunt Millie sells the stock and pays zero capital gains taxes. She now has

$20,000 in after-tax cash that should take care of things for a while.

Had you sold the stock, you would have paid taxes of $4,284 in your tax bracket (23.8 percent x

$18,000 gain).

Of course, $4,000 of the $20,000 you gifted goes against your $12,920,000 estate tax

exemption if you are single. But if you’re married and made the gift together, you each have a

$17,000 gift-tax exclusion, for a total of $34,000, and you have no concerns other than the requirement to file a gift-tax return showing you split the gift.

Entertainment Expense

IRC Sec 274(a); 274(e) entertainment directly related to a trade or business was 50 percent deductible. Now, and for the past two years, it is no longer deductible.

Business Meals Deductions

This chart will help you get ready; check the table below for what you can do in 2023 as the law stands now:

Amount Deductible for Tax Years 2023-beyond 
Description 100% 50% Zero
Restaurant meals with clients and prospects         X
Entertainment such as baseball and football games with clients and prospects X
Employee meals for the convenience of the employer, served by an in-house cafeteria X
Employee meals for required business meetings, purchased from a restaurant X
Meal served at the chamber of commerce meeting held in a hotel meeting room. X
Meal consumed in a fancy restaurant while in overnight business travel status. X
Meals cooked by you in your hotel room kitchen while traveling away from home overnight. X
Year-end party for employees and spouses X
Golf outings for employees and spouses X
Year-end party for customers classified as entertainment X
Meals made on premises for the general public at a marketing presentation X
Team-building recreational event for all employees X
Golf, theater, or football game with your best customer X
Meal with a prospective customer at the country club following your non-deductible round of golf X

Other Employer Programs

  1. Paycheck Protection Program
  2. Paid sick leave and paid family leave credit
  3. Employee Retention Credit (2020 & 2021)
  4. COBRA premium Assistance
  5. HRA Final Regulations (Health Reimbursement Arrangements)

Questions about the above issues have been covered in prior letters. For information, contact me at:  al@whalengroup.com.

IRS Notice 2022-55

2023 Cost of living adjustment (COLA) for retirement plans are published in IRS notice 2022-55:

  1. The defined benefit plan under section 415(b)(1)(A) of the Code is increased from $245,000 to $265,000.
  2. Defined contribution plans under section 415(c) (1)(A) are increased in 2023 from

$61,000 to $66,000.

  1. 401K and 457 plans for elective deferrals are increased from $20,500 to $22,500.
  2. IRA maximum contributions for 2023 increase from $6,000 to $6,500, and if 55 or older, an additional $1,000 can be contributed.
  3. Qualified employee stock ownership plan increase from $55,000 to $60,000.


Individuals Who Are Aged 72 or Older

In this calendar year, you must take a Required Minimum Distribution (RMD) from your IRA by December 31st. There is a 50% penalty tax for forgetting this provision. The only exception to this rule is if you first turn 72, you may wait until April 15th of the following year; however, you must make two distributions in that year if you use this delay of distribution.

Planning Tip: Take advantage of a charitable break for IRA owners. Individuals 70 ½ and older can transfer as much as $100,000 annually from their IRA directly to a qualified charity. You and your spouse can give up to $100,000 each from your separate IRAs if married. The benefit here is:

    1. This distribution also qualifies toward your RMD requirements.
  • This distribution is not taxable to you.
  1. This amount of IRA is forever removed from future income or estate tax.
  2. The charity of your choice benefits from your generosity.

NOTE: This planning is a WIN, WIN, WIN, WIN; when used properly, remember the distribution must go directly from the IRA to the charity. You cannot receive an IRA distribution check, then contribute to the charity and receive the same benefits. If you have investments in other retirement accounts, 401Ks, pension plans, etc., they must be transferred to

an IRA and distributed directly to the charity. All IRA custodians will have the necessary forms to accomplish this method.

Higher-Income Earners With Capital Gains

The Tax Cuts and Jobs Act did not eliminate the surtax of 3.8% (net investment income tax) on certain unearned income. The surtax is the lesser of:

  1. Net investment income (NII), or
  2. The excess of modified adjusted gross income (MAGI) over the threshold amount ($250,000 for joint or surviving spouses, $125,000 for married filing separately, and

$250,000 in any other case).

Note: the IRS does not index these ACA thresholds for inflation. NII included capital gains and Section 457 ordinary income.

PLANNING TIP: Long-term capital gains are most likely the issue to getting the surtax. Many taxpayers who typically have adjusted gross income under $250,000 only experience the surtax once they have a large long-term capital gain. One way to reduce or eliminate the surtax is to consider an installment sale. For example, you sell a piece of real estate for $110,000 with a tax basis of $10,000; therefore, you have a gain of $100,000. You could spread the gain over two years by receiving half of the proceeds this year and a half next year. Now, let’s further assume your adjusted gross income is $200,000. By spreading the $100,000 gain over two years, you would completely avoid the 3.8% surtax.

Estimated Tax and RMDs

Individuals who must pay estimated tax and need to take RMDs from retirement accounts or IRA distributions can elect to have up to 100% of the distribution go to income tax withholding. This possibility eliminates the need to pay estimated tax installments using Form-ES. This is especially effective if you take the distribution near year-end as the IRS considers the withholding as if it had been timely withheld throughout the year.

Take Advantage Of Capital Gains Rules

Long-term capital gain from the sale of assets held over one year and qualifying dividend is

taxed at 0%, 15%, or 20%, depending on the taxpayer’s taxable income. The 2023 long-term capital gains rate is 0% for taxable income under $44,625 single and $89,250 married filing jointly. The 15% capital gains rate applies to taxable income up to $492,300 for single and

$553,850 for married filing jointly. The top bracket rate of 20% applies to gains above those amounts.

PLANNING TIP: Zero-percentage-rate gains and dividends- produce increased adjusted gross income (modified adjusted gross income), which can cause more of your social security to be subject to income tax.

Use of FSA and HSA Plans

Consider increasing the amount you set aside for next year in your employer’s health flexible spending account (FSA) if you set aside too little for this year. If you become eligible in December of 2023 to make health savings account (HSA) contributions, you can make a full

years’ worth of deductible HSA contributions for 2023. The HSA 2023 limits are $3,850 for self-only coverage and $7,750 for family coverage. People age 55 or older get $1,000 more.

Review Your Investment Portfolio For Possible Tax Savings Adjustments

If you consider taking profits in your portfolio, balance gains and losses to reduce the tax. Now is the time to reduce underperforming investments as an offset against the winners. Remember, losses offset gains dollar for dollar. Any excess losses are deductible up to $3,000, and the balance must be carried forward until used up or your death, whichever comes first.

PLANNING TIP: If you hold underperforming stock positions and have an unrealized loss, you could sell the stock experiencing a capital loss and then repurchase the same stock after 31 days and avoid the wash loss rules. If repurchased before 31 days, your stock price gets adjusted, and no loss is realized.

Gifting to Avoid Gift Tax

Consider making gifts sheltered by the annual gift tax exclusion before the end of the year if doing so may save gift or estate taxes. The exclusion applied to gifts up to $17,000 made in 2023 to each of an unlimited number of individuals. There is an unlimited transfer directly to educational institutions for tuition (not considered a gift) or to medical care providers (not considered a gift). You cannot carry over unused exclusions from one year to the next.

PLANNING TIP: Many may prefer cash; however, consider appreciated stocks, mutual funds, or other appreciated assets. Remember, these assets are transferred at Fair Market Value (FMV), so keep the FMV at $16,000 or under. For example, if you own a stock position that has a market value of $16,000 with a cost basis of $6,000 for a gain of $10,000, and you transfer to an individual that is in a zero capital gains bracket, then the $10,000 gain would not be taxable. Remember there are three capital gains brackets: 0%, 15%, and 20%, depending upon your adjusted gross income.

Charitable Contribution Deductions

Unlike in 2021, you cannot receive a charitable contribution deduction in 2023 without itemized deductions. Cash charitable contribution deductions are limited to 60 percent of your adjusted gross income.  If you contribute appreciated in-value non-cash items to a charity ( stocks, mutual funds, art, collectibles), the limit is generally 30% of adjusted gross income. Any excess charitable contributions may be carried forward up to five years.

PLANNING TIP: Contributions of highly appreciated assets have a twofold benefit:

  1. No recognition of capital gains tax.
  2. Charitable deduction limited to 30% of adjusted gross income.

Charitable Gifting to Avoid Both Income Tax and Estate Tax

As in our statement above, gifts of highly appreciated assets can save income tax; however, when used in a special trust, it can save both income tax and estate tax. I am referring to the Charitable Remainder Trust. To keep this planning strategy as simple as possible, you create a charitable trust that names either now or in the future a qualifying charity or charities as beneficiaries. You are the lifetime beneficiary of the trust, and at your death, the remainder of the trust goes to charity or charities. The purpose of this trust is to transfer ownership of the highly appreciated asset or assets to the charitable trust and avoid income tax. You also receive other benefits as well:

  1. No tax upon gifting to the trust, provided the FMV is under the $12.06 million lifetime estate tax exclusion in 2022.
  2. You can sell the assets within the charitable trust without an income tax, as charitable trusts are exempt from income tax.
  3. To generate higher income, you can invest the proceeds into an income-producing investment without tax.
  4. You receive a charitable income tax deduction for the contribution to the trust. Since this is not a present gift but a future gift, the charitable deduction is reduced and limited to 30% of adjusted gross income.
  5. You can take a lifetime income from the trust at a higher amount than if you had sold the asset and invested the proceeds. You keep the entire investment value, not the reduced value after capital gains rates.
  6. The entire gift amount is forever removed from your estate, reducing the estate tax, if any.
  7. You can take the income tax savings from the gift to invest in a life insurance trust to replace the value of the gift in your estate, which becomes tax-free if desired.

Since this is more advanced tax planning and I have just touched upon some benefits, this will be discussed in more detail in future letters.

Hobby Deductions

IRC Sec 183 Hobby expenses could be deducted as miscellaneous itemized deductions subject to the two percent-of-AGI thresholds. Now, hobby expenses that don’t qualify as cost of sale are not deductible.

Why am I even bringing this to your attention? The IRS on Tuesday warned taxpayers about the new $600 threshold for third-party payment reporting. The changes apply to payments from third-party networks, such as Venmo or PayPal, for transactions such as part-time work, side jobs, or selling goods. Before 2022, the federal Form 1099-K reporting threshold was for taxpayers with more than 200 transactions worth an aggregate above $20,000. However, Congress slashed the limit as part of the American Rescue Plan Act 2021, and a transaction over $600 may now trigger the form.

Even if you do not have a business but sell items online through a vendor, you may likely receive a 1099-K; pay attention to this form. Make sure you report it to your tax advisor.

Educator Expenses

The educator expense deduction allows eligible educators to deduct up to $300 worth of qualified expenses without itemizing deductions.

Discharge of Qualified Principal Residence Indebtedness

If you had any qualified principal residence indebtedness discharged in 2023, it is not included in gross income. You must show the discharge on your tax return; however, it is not taxable.

Deductions for Mortgage Insurance Premiums

You might be entitled to treat amounts paid during the year for any qualified mortgage insurance as deductible qualified residence interest if the insurance was obtained in connection with acquisition debt for a qualified residence.

Earned Income Tax Credit

The earned income tax credit (EITC) is determined by multiplying your earned income for the year (but only up to a maximum amount of earned income) by a credit percentage that varies depending on whether you have any qualifying children and, if so, the number of qualifying children. The EITC is also subject to a limitation based on your adjusted gross income. For 2023, the maximum amount of the EITC is: (1) $600 for a taxpayer with no qualifying children, (2)

$3,995 for a taxpayer with one qualifying child, (3) $6,604 for a taxpayer with two qualifying children, and (4) $7,430 for a taxpayer with three or more qualifying children. In addition, the EITC cannot be claimed if your investment income (including interest, dividends, capital gain net income, and net rental income) exceeds $11,000 for 2023.

Education-Related Deductions and Credits

Certain education-related tax deductions, credits, and exclusions from income may be available for 2022. For example, tax-free distributions from a qualified tuition program, also called a Section 529 plan, of up to $10,000 are allowed for qualified higher education expenses.

Qualified higher education expenses include tuition concerning a designated beneficiary’s enrollment or attendance at an elementary or secondary public, private, or religious school, i.e., kindergarten through grade 12. It also includes expenses for fees, books, supplies, and equipment required for participation in specific apprenticeship programs and qualified education loan repayments in limited amounts. A special rule allows tax-free distributions to a sibling of a designated beneficiary (i.e., a brother, sister, stepbrother, or stepsister). As a result, a 529 account holder can distribute a student loan to a sibling of the designated beneficiary without changing the account’s designated beneficiary.

Depending on your modified adjusted gross income for the year, you may also qualify for: (1) an American Opportunity Tax Credit of up to $2,500 per year for each eligible student; (2) a Lifetime Learning credit up to $2,000 for tuition and fees paid for the enrollment or attendance of yourself, your spouse, or your dependents for courses of instruction at an eligible educational institution; (3) exclusion from income for education savings bond interest received; and (4) a deduction for student loan interest.

If you qualified for student loan forgiveness under the plan announced by the Biden administration earlier this year, the forgiven amount would generally be excludible from your income for federal tax purposes. However, due to the discharge, you may be liable for state or local income taxes.

Dependent Care Expenses

For 2023 and children under age 13, the parents can claim a tax deduction of up to 3,000 for qualifying expenses (for a maximum credit of $1,050). The credit is a nonrefundable tax credit. The maximum deduction for two or more children under age 13 is up to $6,000 (for a maximum credit of $2,100). Again, the credit is nonrefundable. A nonrefundable credit can offset tax liability; however, any excess is nonrefundable. This is a severe decline from last year’s deductions and refundable credits.

Child Tax Credit

For 2023, the child tax credit is $2,000 per qualifying child if the modified adjusted gross income is 400,000 or below (married filing jointly) or $200,000 or below (all other filers). This is for children under age 17.

Impact of Future Legislation

Eliminate Under Payment of Estimated Tax Penalty 

There are two ways to accomplish this avoidance:

  1. Pay 110% of the prior year’s tax liability through either income tax withholding, estimated tax payments, or a combination of both.
  2. Pay 90% of the current year’s tax liability through withholding or estimated tax payments or a combination of both.


Tax planning can be accomplished in the few short weeks before December 31st. I want to help you consider some of the tax planning necessary to reduce your federal income tax bottom line. More information in my prior letters may assist you; see my Website, www.whalengroup.com., under the WG Blog section. I am available for your questions at 702-878-3900.

I wish everyone a Happy Thanksgiving.


Al Whalen, EA, ATA, CFP® al@whalengroup.com www.whalengroup.com


Bradford Tax Institute

American Rescue Plan Act of 2021 Tax Cuts and Jobs Act of 2017 The Tax Book

CPA Journal

Accountant’s Daily Insights The Tax Foundation

CPA Practice Advisor

Internal Revenue Notice 2022-55 Parker Tax Publishing


Nancy Eade, Whalen Financial