If you find yourself in a higher tax bracket for 2023, you might face a larger tax bill than you initially expected. That said, there are plenty of year-end tax planning strategies higher-income earners can leverage to help reduce their overall tax burden. Our team of advisors can help you with this process, so read on to learn more!
Maximize Your Contributions to Tax-Deferred Accounts
Retirement savings plans like traditional IRAs, employer-sponsored 401(k)s, Health Savings Accounts (HSAs), Simplified Employee Pension (SEP) IRAs, and solo 401(k)s are each known as “tax-deferred” accounts. Contributions to these retirement accounts are typically not taxed, and your contribution is deducted from your overall taxable income.
By maximizing your contributions to these accounts, you’re able to lower your taxable income, potentially putting you into a lower tax bracket. The downside is that you will pay tax on the distributions in retirement, but if you want to reduce your taxable income, you will want to contribute as much as possible to these accounts. Remember that contributions to some of these accounts must be completed before December 31st. However, contributions to others could be pushed out until April 15th of the next year to be counted for the current tax year, so remember to consult with our team of advisors as soon as you can.
Take Advantage of Tax-Loss Harvesting
Tax-loss harvesting is a helpful strategy that lets you offset some of your realized capital gains with realized capital losses. If you have sold investments at a loss, you could use those losses to reduce the capital gains tax you’d otherwise owe on investments you sold for a profit. If you do not have realized investment gains for the year, you could still use tax-loss harvesting to offset up to $3,000 of your ordinary income. You can carry forward the tax loss to offset gains in the future. If you would like to learn more, contact BWFA.
Minimizing Net Investment Income Tax
Investment income is any money you earn from capital gains after receiving stock dividends or selling securities, interest from bonds, or income from real estate. If you’ve got investment income and your modified adjusted gross income is over $200,000 (while single, $250,000 if married), you could be subject to an additional 3.8% tax because of the net investment income tax. There are various year-end tax planning strategies that you can use to avoid paying the tax, such as tax-loss harvesting. Contact Baltimore-Washington Financial Advisors today if you need assistance! We are a fee-only fiduciary firm with the right expertise for any of your financial needs!
For All Types of Financial Services, Contact Baltimore-Washington Financial Advisors Today!
Baltimore-Washington Financial Advisors is a nationally recognized Fee-Only and Fiduciary wealth management firm, providing comprehensive wealth management since 1986. We integrate investment management, retirement and estate planning, and tax services so you can relax knowing your money is safe. We serve clients throughout the Mid-Atlantic, nationally, and specifically in Annapolis, Baltimore, Ellicott City, Hunt Valley, Catonsville, Pikesville, Bethesda, Columbia, Rockville, Gaithersburg, and more! We’re here to provide you with the best services and advice when you need it. For more information on how we can help, visit our website, or give us a call at 410-461-3900!