The 2023 tax season is still a ways off, but it’s never too early to start planning ahead and preparing for it. Effective tax planning is not just a yearly task, but rather an ongoing process that can help you minimize your tax liabilities. By being proactive and planning ahead for your federal and Georgia state taxes, you can maximize your benefits, minimize your tax liabilities, and avoid any last-minute surprises. Here are some ideas to help you get a head start and make the process as smooth as possible.
Tax Updates for 2023
In 2022, there were relatively few legislative changes that affected tax planning. However, there are still changes to be aware of for 2023. For estate tax planning, the applicable exclusion and GST exemption will increase from $12.06 million in 2022 to $12.92 million in 2023. The annual exclusion for present interest gifts will also rise to $17,000 and the annual exclusion for gifts to a noncitizen spouse will increase to $175,000. However, these exclusions and exemptions will revert back to $5 million (adjusted for inflation) in 2025, so it may be wise to consider removing large amounts from your estate before these changes take effect.
For income tax planning, the standard deduction for married couples filing jointly will increase to $27,700, and the state and local tax deduction cap will remain at $10,000. To maximize your deductions, if possible, consider consolidating your charitable contributions into one year and itemizing them, rather than taking the standard deduction across multiple years.
Tax Planning Tips
Keep track of your income and expenses throughout the year to make it easier to accurately report your income and deductions when it comes time to file your federal and Georgia state taxes. Make sure to keep receipts and other documentation for any deductible expenses, including charitable donations or business expenses. Storing all of this information in one place will also make it easier to complete your taxes.
Review your tax withholdings and your tax-filing status. If you receive a paid salary, you can adjust the amount of tax that is withheld from your paychecks. By reviewing your withholding amount and making any necessary adjustments, you can ensure that you are having the right amount of tax withheld from your paychecks and avoid owing additional taxes. Your tax-filing status may affect your tax bracket or rate and the credits and deductions available to you, so make sure you are using the correct filing status for your situation.
Reduce Your Tax Bill
Begin contributing (or increase your contributions) to a retirement account or plan. Contributions to certain types of retirement accounts, such as a 401(k), 403(b), or traditional IRA, may be tax-deductible. Making contributions to these accounts throughout the year can help reduce your taxable income and lower your tax bill.
Look for ways to reduce your income tax. One of the easiest ways to do this is to reduce your taxable income by making qualifying contributions to specific financial vehicles such as retirement accounts and plans, health savings accounts (HSAs), flexible spending accounts (FSAs), dependent care FSAs, and 529 plans. There are also many credits and deductions available that can reduce your tax bill. Common deductions include charitable donations, mortgage interest, and business expenses. Tax credits (if applicable) can include the child tax credit, the earned income credit, and the American Opportunity Tax Credit for education expenses. Make sure you are aware of all the deductions and credits for which you may be eligible and take advantage of them.
Minimize your capital gains tax on any investments. You can do this by spreading the sale of appreciated assets over two years, transferring appreciated assets to a child or a charity, taking advantage of tax-loss harvesting, or investing your capital gains in Opportunity Zone funds.
Take advantage of current gift and estate tax rates if possible. Utilize the annual gift tax exclusion, which is $17,000 per individual for 2023, and the gift tax lifetime exemption, which is $12.92 million per individual and $25.84 million for a married couple filing jointly for 2023. However, the current exemption amount will sunset in 2025 and revert to the levels prior to the Tax Cuts and Jobs Act of 2017.
Enlist the Legal Experts
The team at Smith Barid offers their expertise to those looking to maximize the value of their estate and plan ahead to protect it for future generations. If you need assistance in planning ahead for the 2023 tax season, contact us today to schedule a consultation.