Tax Deadline Is Near. Don’t Miss These Last-Minute Tips.

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Andrew Perri, President & Founder

aperri@pinnaclewealthonline.com
Pinnacle Wealth Management
Andrew : 810-220-6322

The door hasn’t slammed shut on 2023 tax moves—yet.

While many common tax-savings strategies such as harvesting losses to offset capital gains had to be completed before Jan. 1 to count for 2023, there are still ways to wring out benefits retroactively.

They include perennial moves such as making 2023 contributions to individual retirement accounts by April 15 and considering all deductions and credits as you prepare your tax return.


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iStock-1576063534


On that note, there are valuable perks this year for folks who bought an electric vehicle or made energy-saving home improvements. Barron’s covered these moves in detail in previous stories.

But the following last-chance opportunities are likely to get overlooked because they are new, lesser-known or confusing.

Snag a Full SALT Deduction

More owners of pass-through entities such as partnerships and LLCs may be able to get around the $10,000 limit on deductions for state and local taxes this year.

Since the limit became effective in 2018 under the Tax Cuts and Jobs Act, more states have adopted a pass-through entity tax, which allows owners to shift their state and local tax burden to the entity.

The $10,000 cap doesn’t apply to businesses, so the pass-throughs can claim a full deduction, which reduces the taxable income that flows from the entity to the owners.

The strategy is known as the state and local tax (SALT) workaround.

Currently 36 states have a pass-through entity tax, and rules are pending in Vermont, Pennsylvania and Maine.

While it’s too late to elect to pay the 2023 pass-through entity tax in New York, Michigan and California, most states still allow elections for last year. Whether it makes sense depends on your state’s rules.

“The biggest challenge is states’ rules aren’t uniform,” says Michael Bryan, partner and director of tax services at Cerity Partners.

For example, some states require estimated taxes to be paid during a tax year, so if you make the election now there may be a penalty for not paying estimated taxes.

“Some states provide some leeway on this when it is the first year of an election, but not in subsequent years,” says Brian Myers, vice chair of the State and Local Tax committee with the American Institute of CPAs.

Postpone Capital-Gains Taxes

If you realized big gains late in 2023, there is time to invest them in an opportunity zone fund and defer paying capital-gains taxes.

Opportunity zone investments, established in 2018 under that same Tax Cuts and Jobs Act, come with tax breaks to attract capital into economically struggling areas.

While the juiciest tax benefits have lapsed, two remain:

First, after realizing gains, you have 180 days to invest them in an opportunity zone to qualify to defer capital-gains taxes until 2026, which means taxes would be owed when you file a 2026 return by April 15, 2027.

There’s still time: Gains realized on Dec. 1 would have to be reinvested by May 29.

Second, if you hold an opportunity zone investment for 10 years, any new gains will be free of capital-gains taxes.

“If you double or triple your money after 10 years, when you dispose of it all that gain is excluded from your income,” says Stephen Baxley, head of tax and financial planning at Bessemer Trust.

Take Double Advantage of a New 529 Plan Rule

Starting this year, assets in a 529 plan that go unused for education costs can potentially be funneled into a Roth IRA for the beneficiary of the 529 plan.

Up to $35,000 can be rolled into a Roth IRA on behalf of a single beneficiary, but in any year, you can only roll over up to the IRA’s contribution limit. This year, the limit is $7,000 for folks under age 50.

But there is a way to double up on a rollover this year.

The IRS recently clarified that if you roll over $6,500—the maximum 2023 IRA contribution—before the April 15 tax-filing deadline, that can count as a 2023 contribution, assuming a Roth contribution wasn’t already made.

Then you can make a 2024 529-to-Roth rollover of $7,000, this year’s IRA contribution limit.

This is a way to kick-start your child’s Roth IRA with unused 529 plan money, says Ed Slott, president and founder of Ed Slott and Co. “You can get the benefit of a 2023 contribution even though 2024 is the first year that the provision is effective.”

To be eligible, a 529 plan must have been opened at least 15 years ago; contributions and earnings accrued in the preceding five years cannot be rolled over; and a beneficiary must have some earned income.

Don’t Overlook a Saver’s Credit

If your 2023 income was no more than $73,000 for couples filing jointly, $54,750 for heads of household or $36,500 for singles and other filers, you may claim a saver’s credit for contributing to a retirement plan.

The credit is bigger for lower incomes. The highest possible credit is $1,000 for income limits of $43,500 for joint filers, $32,625 for heads of household and $21,750 for all others.

“In our analysis, the average credit is about $190,” says Catherine Collinson, CEO and president of Transamerica Institute. “It’s not huge. But why leave that on the table?”

This Barron's article was legally licensed by AdvisorStream.

Andrew Perri profile photo

Andrew Perri, President & Founder

aperri@pinnaclewealthonline.com
Pinnacle Wealth Management
Andrew : 810-220-6322