Tips for the 2023 Tax Season

In the thick of summer events and travel, next year's tax filing deadline might seem like a far-off concern. At Comprehensive Wealth Management, we're getting ready to meet with our partner CPAs to review some of our most complex client households in preparation for tax season.
tax season

If you have a CPA of your own, now is the time to reach out – before their fall tax deadlines - to schedule a meeting for November or early December. Unfortunately, after December 31, there is little time left to strategize or maximize.

We don’t anticipate any big changes in tax planning strategy for 2023. It’s been a down year overall, and that may affect your choices, but the same basic planning elements apply for most individuals.

Start with your outlook

Nobody looks forward to paying taxes. But reframing your attitude can take some pain out of the process. Remember that taxes are a symptom of profit – they mean you did well! And depending on market conditions and your own situation, it may be better to realize taxes than minimize them. Taxes are inevitable, but you can often strategize around the timing to realize gains or losses in order maximize your overall benefit.

As we prepare to close the book on 2022, here’s what to keep in mind:

Make smart choices with your IRA. If you’re older than 70 and a half (70.5) – and have an Individual Retirement Account (IRA), there’s an option to gain the tax benefits of charitable giving without having to itemize. At 70.5 years old, you are required to take out at least 3.65 percent of your IRA’s prior year-end balance – a Required Minimum Distribution (RMD) – as taxable income. However, through a Qualified Charitable Donation (QCD), you can give all or a portion of your RMD directly to a qualifying charity, and not pay any income taxes on the funds donated. Pro tip: If you opt for a QCD, request that your IRA custodian send your contribution directly to the charity – the funds cannot come to you first.

Consider a Roth conversion. A traditional IRA allows you to contribute pre-tax dollars, where your money can grow tax deferred. On the flip side, when you withdraw from your IRA in retirement, you’ll pay taxes based on your current income tax rate. With a Roth IRA, however, you contribute after-tax dollars and withdraw money tax-free in retirement. You’re essentially betting that your tax rate is lower now than it will be in the future – which is a safe bet for many younger people. Converting from a traditional IRA to a Roth IRA is also a good strategy for down-market years; we recommend talking to your CPA to see if it might be right for you this year.1

Maximize the benefit of your 401(K). Depending on your income and where you are in your financial journey, it’s often beneficial to max out your 401(K) contributions when you can. if you’re self-employed and have an individual 401(K), remember that employee and employer contributions have different deadlines. Employee contributions must be made by December 31 – but employers have until the April 18th tax filing deadline to contribute for 2023.

Health savings accounts (HSAs). If you have an HSA, maximize funding it if you can. That’s a tax deduction, and the spending is tax-free. Many individuals use these accounts to save up reserves for medical expenses far in the future – such as an unforeseen emergency and expenses during elder years where medical needs generally increase. Note: This is not the case with a flexible spending account (FSA), which is use-it-or-lose-it. It’s important to be sure of which you have.2

83B election. If you work for a company that offers restricted stock units (RSUs) – as many tech companies do these days – ask your CPA about an 83B election. This strategy can help you realize value today, rather than in the future, and it’s a great option for down market years like this one where realized losses can help offset potential gains elsewhere.

Long-term care tax. Washington’s WA CARES long-term care tax has been postponed this year – but if you’re planning to file for exemption, you need to file the letter by the end of 2022. Find much more background on the state payroll tax here.

We’re here to help

If you have questions about your retirement accounts ahead of next year’s tax season, give us a call at (425)778-6160 or complete this form to get in touch. We’re always happy to help at Comprehensive Wealth Management!

1Unless certain criteria are met, Roth IRA owners must be 59 ½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion.

2While you can use the funds in an HAS at any time to pay for qualified medical expenses, you may contribute to an HAS only if you have a High Deductible Health Plan (HDHP), generally a plan (including a Marketplace plan) that only covers preventive services before the deductible. Some health insurance companies offer HSAs for their HDHPs. Check with your company. You can also open an HSA through some banks and other financial institutions. Source https://www.healthcare.gov/glossary/health-savings-account-hsa/

***Comprehensive Wealth Management, LLC does not offer tax advice. Please consult your CPA for specific tax questions.***

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