Broker Check

End-of-Year Planning Opportunities

| November 09, 2022

As we approach the end of another year, a year that has been challenging on many fronts, we thought it would be helpful to provide a list of opportunities that could end 2022 on a positive note.

Roth IRA Conversions:  When market values are depressed, it may be a good time to look at converting money from a Traditional IRA to a Roth IRA. When money is moved from Traditional to Roth, the amount converted is taxable as ordinary income.  Converting during a bear market can reduce the tax impact that would have been if done when values were much higher.  It’s important to note that generally shares of securities can be converted in-kind, without first selling to cash, thereby maintaining the same investment exposure in case of a quick market turnaround.

Charitable Gifts:  For those who are charitably inclined, 12/31/2022 is the deadline for deductible charitable gifts to be made.  Given the elevated levels of standard deductions, the tax benefit of this may be lost for some.  If this is the case for you, consider doubling up charitable gifts in one year and not giving any in the next in order to maximize the tax benefit.  For example, a couple plans to give away $15,000 to their favorite 501(c)3 charity on an annual basis, but their standard deduction is $25,900 for 2022. The value of their gift and other possible deductions would have to be greater than the standard deduction for them to realize any additional tax benefits.  Instead, if they were to double their charitable giving in 2022 to $30,000, they would be able to itemize their deductions and have at least an additional $4,100 of deductions to use this year. They would then hold off on giving in 2023, and still have a hefty standard deduction to use.

Qualified Charitable Distributions:  Along the same lines as the previous opportunity, for those 70½ and older who may not be itemizing their deductions on their tax return, but still wish to give to their favorite cause, the Qualified Charitable Distribution (or QCD) is an option.  A QCD is a direct gift from an individual’s IRA to a qualified charity of up to $100,000.  While normal distributions are taxed as ordinary income, a direct payment to a charity from an IRA is not recognized as taxable income.  Additionally, for those who have required minimum distributions (RMDs) to take but don’t have a need for them to meet their living expenses, a QCD also helps to satisfy the RMD.

Despite a year of ups and downs, there may always be opportunities.  Please don’t hesitate to reach out to us with any questions.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.