2023 Individual Tax Year End Letter

While 2023 has been a fairly quiet year regarding tax legislation, 2022 saw some significant legislative changes that impact 2023 including the Inflation Reduction Act and the SECURE Act 2.0.


While the Inflation Reduction Act focused on ramping up climate and healthcare-related spending it did incorporate several credits related to clean vehicle purchases, hydrogen production, and clean nuclear power. The SECURE 2.0 Act, meanwhile, made several changes to retirement plans.


As any potential 2023 year-end legislation continues to evolve, we will let you know. In the meantime, as the year draws to a close, now is the time to take a closer look at your current tax strategies to make sure they are still meeting your needs and take any last-minute steps that could save you money.



The traditional year-end tax planning strategies, such as accelerating income into the current year or deferring income into the following year and accelerating expenses into the current year or deferring expenses into the following year still make sense, even in 2023. The proper strategy depends on whether or not you anticipate a significant change in income or expenses next year.

Depending on your projected income for 2023, you may need to revise your withholdings or increase/decrease your 4th quarter estimated tax payments for 2023 to take these changes into consideration. The 2023 federal and Wisconsin 4th quarter estimated tax payments are due on January 16, 2024, this year.

The due dates are as follows for some common tax returns:

  • 2023 Individual return Form 1040 due date is April 15, 2024.
  • 2023 FBAR Form FinCEN 114 return due date is April 15, 2024. Filers who fail to file their 2023 calendar year FBAR by April 15, 2024, have an automatic extension up to October 15, 2024.

While the following are some of the actions you should consider, the focus should not be entirely on tax savings. These strategies should be adopted only if they make sense in the context of your total financial picture.


Accelerating Income into 2023

Depending on next year’s projected income, it may make sense to accelerate income into the 2023 tax year. Besides harvesting gains from your investment portfolio, other options for accelerating income include:

  • If you own a traditional IRA or a SEP IRA, converting it (or a portion of it) into a Roth IRA and recognizing the conversion income this year.
  • Taking IRA distributions (greater than RMDs) this year rather than next year.
  • Selling other assets that create taxable gains this year.
  • If you are self-employed with receivables on hand, trying to get clients or customers to pay before year end.

Deferring Income into 2024

There are also scenarios in which it might make sense to defer income into the 2024 tax year; for example, if you think that your income will decrease substantially next year. Some options for deferring income include:

  • If you are due a year-end bonus, asking your employer to pay the bonus in January 2024 or later.
  • If you are considering selling assets that will generate a gain, postponing the sale until 2024.
  • Delaying the sale of any stock options you may have.
  • If you are selling property, considering an installment sale or perhaps closing next year.
  • Consider parking investments in deferred annuities.

Accelerating Deductions into 2023

If you expect your income to decrease next year, you should accelerate what deductions you can into the current year. Some options for accelerating deductions include:

  • Consider making your January mortgage payment in December.
  • Since medical expenses are deductible only to the extent they exceed 7.5% of your adjusted gross income (AGI), if you have large medical bills not covered by insurance, bunching them into one year may help overcome this threshold.
  • Making large charitable donations in 2023, rather than 2024. This might include using a Donor-advised fund (DAF). A DAF allows you to claim a tax deduction for current year contributions even though these funds may not be distributed to your chosen charities until future years.
  • Selling some or all your loss stocks, which might be used in the current year.
  • If you qualify for a health savings account (HSA), consider setting one up and making the maximum contribution allowable.
  • Establishing and contributing to a Traditional IRA, if you have earned income (like wages) and are within certain income requirements.
  • If your employer has a 401(k) plan, consider contributing the maximum salary allowed before year-end.

Be aware of the current standard deduction amounts for 2023 when considering these options, which are $27,700 Married Filing Joint (MFJ), $20,800 Head of Household (HOH) and $13,850 for Single and Married Filing Separately (MFS). Additional amounts for elderly/blind are retained. A taxpayer can take the higher of their standard deduction or itemized deductions (i.e., state and local taxes, mortgage interest, and charitable contributions). Due to these increased standard deduction amounts many taxpayers might no longer itemize in 2023.


Life Events

Certain life events can also affect your tax situation. If you’ve gotten married or divorced, had a birth or death in the family, adopted a child, lost or changed jobs, or retired during the year, we need to discuss the tax implications of these events.


Inflation Reduction Act, SECURE 2.0 Act and Other considerations

  • Affordable Care Act Subsidies – The subsidy rules of the ACA were extended into 2025. As such, subsidies will be sufficient to keep the cost of the benchmark plan at no more than 8.5% of income. The sliding scale for that will continue to be 0% to 8.5% of income (depending on income), and this scale is not inflation-adjusted. The year-round enrollment opportunity for subsidy-eligible low-income applicants (those with income up to 150% of the poverty level) will continue to exist through 2025. Also, subsidies will not abruptly end if a household’s income exceeds 400% of the poverty level, but will gradually phase-out as one approaches an upper income limit for based on age and location.
  • Discharges of Student Debt – For tax years beginning 2021 through 2025, discharges of many public and private student loans are excluded from gross income for federal income tax. Please contact us for further information about which loans are eligible.
  • Nonbusiness Energy Property Credit – You may take the credit for energy-efficient property placed in service before January 1, 2033. The credit is an amount equal to 30% of the sum of (a) the amount paid or incurred by you for qualified energy efficiency improvements installed during that year, and (b) the amount of the residential energy property expenditures paid or incurred by you during that year. The credit is further increased for amounts spent for a home energy audit. The amount of the increase due to a home energy audit cannot exceed $150. Lastly, the changes also repeal the lifetime credit limitation, and instead limit the allowable credit to $1,200 per taxpayer per year. In addition, there are annual limits of $600 for credits with respect to residential energy property expenditures, windows, and skylights, and $250 for any exterior door ($500 total for all exterior doors). Notwithstanding these limitations, a $2,000 annual limit applies with respect to amounts paid or incurred for specified heat pumps, heat pump water heaters, and biomass stoves and boilers.
  • Residential Clean Energy Credit – this credit for solar electric, solar hot water, fuel cell, small wind energy, geothermal heat pump, and biomass fuel property installed in homes has been extended through 2034. This credit is also available for qualified battery storage technology expenditures.
  • New Clean Vehicle Credit (previously New Qualified Plug-In Electric Drive Motor Vehicle credit) – The credit is renamed, and new legislation has added a new requirement for final assembly in North America that took effect on August 17, 2022, with additional requirements taking place beginning January 1, 2023. The rules are complicated. For example, the new rules place more emphasis on where the battery components (and critical minerals used in the battery) are sourced. The minimum credit amount is $2,500, and the credit may be up to $7,500 based on each vehicle’s traction battery capacity and the gross vehicle weight rating. No credit is allowed if the lesser of your modified adjusted gross income for the year of purchase or the preceding year exceeds $300,000 for a joint return or surviving spouse, $225,000 for a head of household, or $150,000 for others. In addition, no credit is allowed if the manufacturer’s suggested retail price for the vehicle is more than $55,000 ($80,000 for pickups, vans, or SUVs).
  • Previously-Owned Clean Vehicles – A qualified buyer who acquires and places in service a previously-owned clean vehicle after 2022 is allowed an income tax credit equal to the lesser of $4,000 or 30% of the vehicle’s sale price. No credit is allowed if the lesser of your modified adjusted gross income for the year of purchase or the preceding year exceeds $150,000 for a joint return or surviving spouse, $112,500 for a head of household, or $75,000 for others. In addition, the maximum price per vehicle is $25,000.
  • Required Minimum Distributions (RMDs) – RMDs are the minimum amount you must annually withdraw from your retirement accounts (e.g., 401(k), IRA, etc.) if you meet certain age criteria. For example, in 2022, you were required to take a distribution if you were age 72 by the end of the year. The age requirements were increased under the SECURE 2.0 Act from age 72 to: (A) age 73 starting on January 1, 2023 (for individuals who attain age 72 after December 31, 2022, and age 73 before January 1, 2033); and (B) age 75 starting on January 1, 2033 (for individuals who attain age 74 after December 31, 2032). This applies to distributions required to be made after December 31, 2022, with respect to individuals who attain age 72 after such date. The Act also eliminates the pre-death distribution requirement for Roth accounts in employer plans, effective for tax years beginning after 2023. Starting in 2024, a designated beneficiary surviving spouse may elect to be treated as if the surviving spouse were the employee for purposes of the required minimum distribution rules for an employer-provided qualified retirement plan. Planning ahead to determine the tax consequences of RMDs is important, especially for those who are in their first year of RMDs.
  • Distributions of Retirement Plans – The SECURE 2.0 Act waved penalties for taking early distributions under certain conditions:
    • You may now take early distributions without penalty if you are terminally ill. “Qualified Public Safety Employees”, think public fire fighters, may take distributions without penalty at a reduced age of 50, rather than 55.
    • Starting in 2024, you may take a penalty-free withdrawal of up to $1,000 a year for certain emergency personal or familial expenses.
  • Section 529 Plans – Section 529 plans may be rolled over tax-free to a Roth IRA via a direct trustee-to-trustee rollover starting in 2024. For 2023, a Section 529 plan may be used to repay up to $10,000 of student loans (principal and/or interest) for the 529 beneficiary or their sibling.
    • However, the portion of student loan interest that is paid for with tax-free 529 plan earnings is not eligible for the student loan interest deduction.
    • The law includes an aggregate lifetime limit of $10,000 in qualified student loan repayments per 529 plan beneficiary and $10,000 per each of the beneficiary’s siblings. Siblings may include a brother, sister, stepbrother or stepsister. A 529 plan account owner may change the 529 plan beneficiary at any time without tax consequences.
  • Health Flexible Spending Arrangements – For plan years beginning in 2023, the contribution limits for health FSAs are increased to $3,050 and the maximum carryover to plan years beginning in 2024 is $610.
  • Health Savings Accounts – The 2023 limits have increased significantly. For 2023, the maximum deductions under a High Deductible Health Plan for self-only coverage and family coverage has increased to $3,850 and $7,750, respectively. For individuals 55 or older an additional $1,000 can be deducted.
  • State Tax Obligations Related to Teleworking Arrangements – The pandemic has spawned changes in how people work, and more people are permanently working from home (i.e., teleworking). Such remote working arrangements across state lines could potentially have tax implications. Please contact us to discuss this further if you are in this situation or have questions.
  • Virtual Currency/Cryptocurrency – Virtual currency transactions are becoming more common. There are many different types of virtual currencies, such as Bitcoin, Ethereum and Ripple. The sale or exchange of virtual currencies or the use of such currencies to pay for goods and/or services generally has tax consequences, which need to be reported on your return.
  • Charitable Contribution Deductions – For 2023, individuals who want to deduct charitable contributions must itemize. Moreover, cash contributions are now limited to 60% of your AGI. There are many tax planning strategies we can discuss with you in this area.
  • Traditional IRA Contributions for All – The age restriction on making traditional IRA contributions was removed. Individuals over the age of 70½ who are still working in 2023 are no longer prohibited from contributing to a traditional IRA. However, if you’re over age 70½ and considering making a charitable donation directly from your IRA (known as a Qualified Charitable Distribution or QCD) in the future, making a deductible IRA contribution will affect your ability to exclude future QCDs from your income. Starting in 2023, donors can also direct a one-time $50,000 QCD to a charitable remainder trust or charitable gift annuity as part of recently passed SECURE Act 2.0 legislation. Starting in 2024, annual QCD limits will be indexed for inflation. Please contact us for further explanations of QCDs and how they can be an effective way to give to charity and reduce your income.
  • Convert Traditional IRA(s) into Roth accounts – This may be the perfect time to make that Roth conversion you’ve been thinking about. The current tax rates are still relatively low and could increase soon.
  • IRA Catch Up Limits – Beginning in 2024, the $1,000 IRA contribution catchup limit for individuals who are 50 years or older will be indexed to inflation. Note that the Secure Act 2.0 passed in 2022 will eventually change catch-up contributions in significant ways. The 401(k)/403(b) catch-up for those 50+ has always been indexed to inflation. But originally the Act stated that, starting in 2024, if you have a Modified Adjusted Gross Income of $145,000+ (indexed to inflation), those catch-up contributions would now have to come on the Roth side. That means tax-deferred catch-up contributions would no longer be allowed for these high earners. In August 2023, though, the IRS announced that it was pushing back that provision until 2026. That means for the next few years, your catch-up contributions can come either via the traditional method or via Roth.
  • Take advantage of 0% tax rate on investment income – A potential silver lining to a down year may be the ability to harvest some long-term capital gains at very favorable rates. For 2023, singles can take advantage of the 0% income tax rate on long-term capital gains and qualified dividends from securities held in taxable brokerage firm accounts if their taxable income is $44,625 or less. For heads of household and joint filers, that limit is increased to $59,750 and $89,250, respectively.
  • Foreign Bank Account Reporting – If you have a foreign bank account or assets, there might be reporting requirements and tax forms to file. Noncompliance carries stiff penalties.
  • The 2023 Gift Tax Annual Exclusion – The annual exclusion was increased to $17,000 per Donee (up from $16,000 in 2022). The 2024 Gift Tax annual exclusion will increase to $18,000 per Donee.
  • Review Your Paycheck Tax Withholding – It’s important to check your tax withholding, especially if you had major employment or life changes, such as an increase to your income, a change in your marital status, the arrival of a new child or the purchase of a home. Reviewing your tax withholding can help you see if you have the right amount of taxes taken out of your paycheck. If you do not withhold enough taxes, you may owe money when you file your income taxes and face an unexpected bill. On the other hand, if you withhold too much—and you receive a large tax return—you may prefer to adjust your taxes to receive more money in each paycheck.
  • Gifting of Business Ownership Interests Prior to a Sale – Often private business owners will want to gift stock or ownership in a company around the time that the company is sold so as to offset the tax liability on the appreciated gains by using a discounted appraisal method to value the gift as well as transferring the appreciated assets to either lower-taxed family members or charities. Timing is key in such a transaction and the gift should be made prior to a contract being executed. In the case where a gift was made following a signed sale contract, the courts have regularly interpreted that the sale occurred first and allocated the gains to the Donor rather than the Donee. Moreover, the courts have used the sales price under contract rather than a discounted valuation model to value the amount of the gift, potentially triggering a Gift Tax payable if the value exceeds the Donor’s Lifetime Gift and Estate Tax Exemption. Planning ahead to determine the tax consequences of a gifting of business ownership is critical and we are here to help.
  • Wisconsin Internal Revenue Code (IRC) Conformity – On October 25, 2023, Wisconsin Governor Tony Evers signed legislation that updates the state’s IRC conformity. Of particular note:
    • For taxable years beginning after December 31, 2018, Wisconsin had adopted the exclusion from taxable income of 100% of the gain from the sale of Qualified Small Business Stock (IRC Section 1202) that is held for at least five years.
  • Create an IRS Online Account – Now is a good time to create an IRS online account. The account allows you to view your balances, along with prior tax records, payments and more, without the need to speak with the service. While your 2023 tax paperwork, such as W2s and 1099s, may not be available at this time, creating your account now can save you time when filing during the next tax season, since you will not need to go through the verification process. To get started, see https://www.irs.gov/payments/your-online-account.


Tax Organizers

As in prior years, it is our intention to send out or upload your 2023 tax organizers the first week of January 2024. We will deliver the organizers to your secure online access portal. You will receive an e-mail notification when the organizer has been uploaded. For the few clients that have requested a paper organizer in addition to the electronic version, these will be mailed out in the beginning of January as well.


Please reach out to us at your earliest convenience so we can set up an appointment to estimate your tax liability for the year, assess any opportunities to reduce your tax liability and discuss any questions you may have. Contact Berndt CPA


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