2023 Personal Tax Guide: Year-End Tax Strategies for 2022 – EisnerAmper

2023 Personal Tax Guide: Year-End Tax Strategies for 2022 – EisnerAmper





Our Personal Tax Guide highlights tax planning ideas that may help you minimize your tax liability. The best way to use this guide is to identify issues that may impact you, and then discuss them with your tax advisor.
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December 06, 2022
In this first chapter of the 2023 Tax Guide, EisnerAmper provides year-end tax planning strategies for 2022.
Effective tax planning can accomplish much more than just saving income taxes for the current and future years. If done properly, effective tax planning can maximize the amount of funds you will have available for retirement, reduce the cost of financing your children’s education, reduce eventual estate taxes, and assist you in managing your cash flow to help you meet your financial objectives.
In some years your tax planning goals may include deferring some of your current year’s tax liability to a future year, thereby freeing up cash for investment, business, or personal use. This can be accomplished by timing when certain expenses are paid or controlling when income is recognized. Tax planning allows you to take advantage of tax rate differentials between years. However, if tax rates rise in a subsequent year, it might make sense to consider accelerating income into the current tax year. It is important to consider all facts and circumstances when doing tax planning.
Tax Law Changes Impacting 2023 and Beyond
The Setting Every Community Up for Retirement Enhancement (“SECURE”) Act, enacted in late 2019, repealed the maximum age for traditional IRA contributions for tax years 2020 and later. An individual at any age may contribute to a traditional IRA if compensation is received.
Other changes under the SECURE Act include:
The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, enacted on March 27, 2020, resulted in changes including:
The Consolidated Appropriations Act, 2021 (“CAA”), enacted December 27, 2020, included some of the following changes:
The American Rescue Plan Act of 2021 (“ARPA”), enacted March 11, 2021, resulted in changes including:
On August 16, 2022, Congress passed the Inflation Reduction Act (“IRA”) as part of efforts to lower the cost of living for American families and confront the climate crisis. Along with the passage of this act came a number of credits and rebates designed to promote clean energy.
As a result of the Tax Cuts and Jobs Act of 2017 (“TCJA”), the alternative minimum tax (“AMT”) has affected less taxpayers than in past years, so some of the tax strategies utilized in prior years will no longer be applicable. The key factors you should consider when identifying strategies to minimize your taxes are:
Note: Starting in 2021, if a gain invested in a QOF was excluded from federal gross income, the amount excluded will be added back to New York’s calculation of adjusted gross income.
Tax Planning Goals
Tax Tip
Your regular tax rate will be the same or lower next year and the AMT will not apply in either year.
The regular tax rate applies this year and is higher than the AMT rate that you expect will apply next year.
You need funds for personal use, such as improvements to your home in excess of the mortgage limitations or to pay tax liabilities.
Tax Tip
Legend = Prepay before the end of the current year/Defer into next year or later/Collect before the end of the year.
*The chart assumes your regular tax rate on ordinary income is higher than the maximum AMT tax rate of 28%. 
Year-End Tax Planning Tips
Tax Tip 1 provides a snapshot of key strategies geared toward helping you achieve your planning goals. It includes ideas to help you reduce your current year’s tax as well as any potential future taxes. While this chart is not all-inclusive, it is a good starting point to help you identify planning ideas that might apply to your situation. Keep in mind that many of the strategies involve knowing what your approximate income, expenses and tax rates will be for the current and subsequent years and then applying the applicable tax law for each year to determine the best path to follow. Implementation of many of these ideas requires a thorough knowledge of tax laws, thoughtful planning and timely action.
Timing when you pay deductible expenses and when you receive income (to the extent you have control) can reduce your taxes. Timing expenses and income can also defer some of your tax liability to next year (or even later years) giving you, rather than the government, use of your money.
To gain the maximum benefit, you need to project, as best you can, your tax situation for the current and subsequent years. This will help you identify your tax bracket for each year. Your year-to-date realized long and short-term capital gains and losses should be included in your projections. Be sure to consider prior year loss carryforwards (if any). Based on these results, you can decide what steps to take prior to year-end. You will be able to decide whether you should prepay deductions and defer income, defer expenses and accelerate income, realize capital losses, or lock in capital gains.
In some situations, a taxpayer who expects to be taxed at a higher rate in the following year should plan to accelerate income and defer deductions. Some of the situations are:
Tax rates are adjusted for inflation and the incremental increase from 2022 to 2023 to the highest tax bracket is almost double that of prior-year increases. In this situation, a taxpayer may find themselves in a lower tax bracket in the following year and should plan to defer income and accelerate deductions:
Tax Tip 2 offers basic guidance for deciding when to prepay or defer deductible expenses and when to defer or collect taxable income.
Tax Tip 3 offers steps to follow relating to realized capital gains and/or losses, and the type of gains and losses you should trigger.
Tax Tip 4 shows the benefit of bunching charitable contribution deductions in one year, even when the standard deduction applies in subsequent years.
Tax Tip
If you have
Consider taking these steps
Take losses equal to the net gain, plus $3,000. Use long-term loss positions first to gain the benefit of offsetting short-term gains (taxed at a rate as high as 37% in 2022 plus 3.8% Medicare Contribution Tax on net investment income).
Worthless securities and bad debts
Note: If you are married filing separately, substitute $1,500 for $3,000 in the above tip.
Expenses You Can Prepay
Here are the most common deductible expenses you can easily prepay by December 31, if appropriate:
Prior to 2020, individual itemizers were allowed to deduct up to 60% of their AGI for cash donations to qualified charities. For 2020 and 2021, the AGI ceiling was revised to allow taxpayers to deduct up to 100% of AGI for qualified cash contributions, which are defined as cash contributions to public charities, and certain private foundations. Cash contributions to donor-advised funds in 2020 and 2021 were capped at 60% of AGI. This increase has not been extended to 2022 or beyond. Non-cash contributions (such as clothing and household goods) to qualifying organizations continue to be capped at 50% of AGI while contributions of appreciated capital gain property are capped at 30% of AGI. Be sure to carefully work through the calculations, as gifting different types of property to charities with varying exempt status (such as private foundations or public charities) can limit the amount of the deduction allowed in a particular year.
A taxpayer may claim an itemized deduction of up to $10,000 ($5,000 for married filing separately) for the aggregate of (1) state and local income taxes and (2) state and local property taxes paid.
All miscellaneous itemized deductions that were subject to the limitation of 2% of AGI were suspended until tax years beginning after December 31, 2025.
Before the end of the year, consider prepaying your mortgage payment for next January in the current year to accelerate the deduction.
Be sure to pay any margin interest, since interest accrued at year-end is only deductible if actually paid. This may also reduce the Medicare Contribution Tax on net investment income.
Be sure to accelerate the purchases of business equipment to take advantage of expensing allowances, subject to certain limitations. To qualify, the property must be placed in service in the year of the intended deduction. TCJA expanded the deduction to 100% for qualified property placed in service by December 31, 2022 with the amount dropping by 20% beginning in 2023 until bonus depreciation sunsets in 2027.
Income You Can Accelerate or Defer
Timing income can be more difficult than timing deductions, but here are some types of income that you may be able to control the timing of receipt so you can gain the advantage of having the income taxed in a year that you are in a lower tax bracket.
If you anticipate your current year’s income tax rate to be lower than next year’s rate, you can accelerate salary or bonuses into the current year. You would need to determine if there are strict limitations on amounts that can be accelerated. However, if next year’s rate is lower than your current year’s rate, it may make sense to defer such income until next year provided the income is not constructively received (made available to you in the current year).
If you are a cash-basis business and you anticipate your current year’s tax rate to be lower than next year’s rate, you can accelerate income into the current year. Otherwise, you would want to defer such income.
If you are over age 59½ and your tax rate is low this year, you may consider taking a taxable distribution from your retirement plan even if it is not required or consider a Roth IRA conversion. Individuals of at least age 70½ are allowed to make tax-free distributions of up to $100,000 from individual retirement accounts directly to public charities. This allows an individual to exclude the distribution from income, thereby reducing your state income taxes in states that limit or disallow the charitable contribution deduction.
The SECURE Act, which was signed into law on December 20, 2019, changed the timing by which you must withdrawal your first required minimum distribution (“RMD”). If your 70th birthday is July 1, 2019, or later, you are not required to take the first distribution from the retirement accounts until you reach age 72.
Adjust the timing of deductible pension plan or IRA contributions to reduce income in a year when you expect your tax rate to be higher.
Consider which year to make deductible health savings account contributions.
The following ideas can lower your taxes this year:
If you are selling real estate or other non-publicly traded property at a gain, you would normally structure the terms of the arrangement so that most of the payments would be due next year. You can use the installment sale method to report the income. This would allow you to recognize only a portion of the taxable gain in the current year to the extent of the payments you received, thereby allowing you to defer much of that tax to future years.
If you have U.S. Treasury Bills maturing early next year, you may want to sell these bills to recognize income in the current year if you expect to be in a lower tax bracket this year than next year.
Consider the timing of installment sales and the recognition of income currently if a lower tax bracket is expected.
Determine which year would be most beneficial to sell your principal residence and claim the $500,000 exclusion (if you are filing joint returns, if available). The exclusion for other taxpayers is $250,000. See chapter on principal residence sale and rental for more details.
Generate wash sales and/or constructive sales to adjust realized gains and losses to a more beneficial year. See chapter on capital gains and dividend income for further information.
Bunching Deductions
The CAA provided that unreimbursed medical expenses are permanently deductible to the extent they exceed 7.5% of AGI. Therefore, bunching unreimbursed medical expenses into a single year could result in a tax benefit. Medical expenses include health insurance and dental care. If you are paying a private nurse or a nursing home for a parent or other relative, you can take these expenses on your tax return even if you do not claim the parent or relative as your dependent, assuming you meet certain eligibility requirements.
If you’re self-employed and have a net profit for the year, you may be eligible for the self-employed health insurance deduction. This is an adjustment to income, rather than an itemized deduction, for premiums you paid on a health insurance policy covering medical care, including a qualified long-term care insurance policy for yourself, your spouse, and dependents. The policy can also cover your child who is under the age of 27 at the end of 2022, even if the child wasn’t your dependent.
As a result of the TCJA, many itemized deductions have been eliminated or limited. The deduction for the charitable contribution is the exception, as it has virtually been untouched by the TCJA. However, the CARES Act has altered charitable contributions. See chapter on charitable contributions. At the same time, the standard deduction has increased substantially. An individual can deduct the larger of either his/her standard deduction or itemized deductions. Thus, to maximize the deduction for charitable contributions, it might be best to bunch gifts to charities in one year, so the individual’s charitable contributions exceed the standard deduction amounts, and he/she will be able to itemize. Similarly, funding a donor-advised fund, private foundation or a charitable trust in a particular year may be effective in maximizing the tax benefit of such charitable deductions.
Tax Tip 4 shows the potential benefits of bunching charitable deductions.
Adjust Year-End Withholding or Make Estimated Tax Payments
If you expect to be subject to an underpayment penalty for failure to pay your current-year tax liability on a timely basis, consider increasing your withholding and/ or make an estimated tax payment between now and the end of the year to eliminate or minimize the amount of the penalty.
Utilize Business Losses or Take Tax-Free Distributions
It may be possible to deduct losses that would otherwise be limited by your tax basis or the “at risk” rules.  You may also be able to take tax-free distributions from a partnership, limited liability company (“LLC”) or S corporation if you have tax basis in the entity and have already been taxed on the income. If there is a basis limitation, consider contributing capital to the entity or making a loan under certain conditions.
Passive Losses
If you have passive losses from a business in which you do not materially participate that are in excess of your income from these types of activities, consider disposing of the activity. The tax savings can be significant since all losses become deductible when you dispose of the activity. Even if there is a gain on the disposition, you can receive the benefit of having the long-term capital gain taxed at 23.8% (28.8% if the gain is subject to depreciation recapture) with all the previously suspended losses offsetting ordinary income at a potential tax benefit of 40.8% in 2022, inclusive of the Medicare Contribution Tax.
Review your incentive stock option (“ISO”) plans prior to year-end. A poorly timed exercise of ISOs can be very costly since the spread between the fair market value of the stock and your exercise price is a tax preference item for AMT purposes. If you are in the AMT, you will have to pay a tax on that spread, generally at 28%. If you expect to be in the AMT this year but do not project to be next year, you should defer the exercise. Conversely, if you are not in the AMT this year, you should consider accelerating the exercise of the options; however, keep in mind to not exercise so much as to be subject to the AMT.
Estate Planning
If you have not already done so, consider making your annual exclusion gifts to your beneficiaries before the end of the year. For 2022, you are allowed to make tax-free gifts of up to $16,000 per year, per individual ($32,000 if you are married and use a gift-splitting election, or $16,000 from each spouse if the gift is funded from his and her own separate accounts). For 2023, you can make a tax-free gift of up to $17,000 per individual, or $34,000 if you are gift-splitting with your spouse. By making these gifts, you can transfer substantial amounts out of your estate without using any of your basic exclusion amount (“BEA”). Also, try to make these gifts early in the year to transfer that year’s appreciation out of your estate.
Furthermore, because of the increased cumulative BEA in 2022, you may wish to make additional gifts to fully utilize such exclusion of $12.06 million ($25.12 million for married couples). For 2023, these amounts will increase to $12.92 million ($25.84 for married couples). The BEA has doubled as a result of the TCJA; however, it will sunset at the end of 2025, reverting back to the maximum BEA in effect before the TCJA became law, which was $5 million, adjusted for inflation. When combined with other estate and gift planning techniques, you may mitigate estate and gift taxes and transfer a great deal of wealth to other family members (who may be in a lower income tax bracket or may need financial assistance).
Note: The amount of the lifetime gift exclusion will be adjusted annually for the chained consumer price index (“CPI”).
Tax Strategies for Business Owners
If you are a cash-basis business and expect your current year’s tax rate to be higher than next year’s rate, you can delay billing until January of next year for services already performed to take advantage of the lower tax rate next year. Similarly, even if you expect next year’s rate to be the same as this year’s rate, you should still delay billing until after year-end to defer the tax to next year. You also have the option to prepay or defer paying business expenses to realize the deduction in the year that you expect to be subject to the higher tax rate. This can be particularly significant if you are considering purchasing (and placing in service)
business equipment. If you are concerned about your cash flow and want to accelerate your deductions, you can charge the purchases on the company’s credit card. This will allow you to take the deduction in the current year when the charge is made, even though you may not actually pay the outstanding credit card bill until after December 31.
Tax benefits are available for immediate deduction of business equipment purchased and placed in service in 2022. The amount allowable for full deduction in 2022 under IRC Sec. 179 is $1,080,000 if property placed in service does not exceed $2,700,000. After reaching this threshold the deduction is phased out dollar-for-dollar, up to $3,780,000. For 2023, the IRS Sec. 179 deduction is capped at $1,160,000 and is phased out at $2,890,000. Bonus depreciation was increased to 100% for property placed in service after September 27, 2017 until December 31, 2022. As mentioned earlier, the bonus percentage will decrease each year starting in 2023 until it sunsets in 2027. The TCJA expands the definition of qualified property to include used property, provided that the taxpayer did not use the property prior to the purchase.
Note: Under the TCJA, some businesses may not be eligible for bonus depreciation. For example, bonus depreciation is not allowed for certain real estate businesses with average annual gross receipts of more than $25 million for the prior three years, subject to inflation adjustment, that elect to deduct 100% of their business interest expenses.
Note: The bonus depreciation is an addback on most state returns while IRC Sec. 179 expense is only a partial addback.
Note: Some states may not allow bonus depreciation.
If you have debt that can be traced to your business expenditures – including debt used to finance the capital requirements of a partnership, S corporation or LLC involved in a trade or business in which you materially participate – you can deduct the interest “above-the-line” as business interest rather than as an itemized deduction. The interest is a direct reduction of the income from the business. This allows you to deduct all of your business interest, even if you are a resident of a state that limits or disallows all of your itemized deductions.
Business interest also includes finance charges on items that you purchase for your business (as an owner) using the company’s credit card. These purchases are treated as additional loans to the business, subject to tracing rules that allow you to deduct the portion of the finance charges that relate to the business items purchased. Credit card purchases made before year-end and paid for in the following year are allowable deductions in the current year for cash basis businesses.
Note: Interest expense deduction is limited to 30% of adjusted taxable income (“ATI”). Beginning in 2022, depreciation, amortization and depletion are no longer added back in the calculation of ATI.  Such limitation does not apply to:
Note: Disallowed business interest deduction is carried over to the next year subject to that year’s limitation.
Qualified business income (“QBI”) is generally defined as net income and deductions that are effectively connected to a U.S. business. Through 2025, the TCJA provides an IRC Sec. 199A deduction for sole proprietors and owners of pass-through entities of a “qualified” business generally equal to 20% of qualified business income, subject to various loss and deduction limitations. Though this deduction is not allowed in calculating the owner’s AGI, it does reduce the taxable income.
Excess losses from all of your trades or businesses for 2022 are limited to $540,000 (married filing jointly) and $270,000 (all others). Any losses above these amounts will be carried forward as an NOL. NOLs arising in tax years ending after 2020 can only be carried forward.  NOLs cannot be carried back and can offset up to 80% of taxable income in future years with any excess to be carried forward indefinitely.
Note: The CARES Act removed the limitation on excess business losses for taxpayers other than corporations for tax years beginning after December 31, 2017 and before January 2, 2021. It modified the loss limitation for non-corporate taxpayers so they can deduct excess business losses arising in 2018, 2019 and 2020. In the event such losses were not fully utilized in the year they arose, the CARES Act allows non-corporate taxpayers to carryback such losses five years unless an election is made to forego the carryback. The NOL limitation of 80% of taxable income had also been temporarily suspended. All limitations related to EBL and NOL will resume for years beginning after 2020 and before 2026.
Effective January 1, 2022, R&D expenditures under IRC Sec. 174 are required to be capitalized as opposed to expensed. The option to deduct the full expense in the year incurred has been eliminated by TCJA. Expenditures for research conducted in the U.S. are amortized over five years. If the research is conducted outside the U.S., the expenditures are amortized over 15 years. For more information, please see the chapter on tax credits.
The TCJA limited the itemized deduction of state income and real estate tax deduction to $10,000. Since then, states have explored ways for a workaround and came up with the pass-through entity tax (“PTET”). In November 2020, the IRS issued guidance to allow state tax deductions at the pass-through entity level. The PTET is an “optional” state income tax payment subject to timely annual election. It allows the entity to pay state tax and take the payments as a deduction to offset the business’ gross income without limitation at the federal level thereby reducing the partners’ allocated income from the entity. In general, each partner and shareholder of the pass-through entities that paid the PTET will receive a credit against their state individual income tax liability. However, some states may not allow the payments as a credit but instead will allow the deduction to offset their distributive share of income from their state adjusted gross income in determining their state income tax liability.  For tax years beginning on or after January 1, 2022, New York City partnerships or S corporations that have elected to participate in the New York State PTET may annually elect to participate in the New York City PTET.  Partners, members, or shareholders who are subject to the New York City personal income tax may be eligible for a NYC PTET credit against New York City personal income taxes on their New York State income tax returns.  For more information, see the chapter on state tax issues.
Note: Depending on the state, the PTET tax could be an addback to a state’s adjusted gross income in determining their state income tax liability.
Tax Tip
Sam and Sally incur $15,000 in real estate taxes annually and make charitable contributions of approximately $30,000 in cash per year to public charities. Over a five-year period, charitable contributions would total $150,000 and deductible real estate taxes would total $50,000 ($10,000 maximum each year for five years). Total itemized deductions would be $200,000.
Bunching all $150,000 charitable contributions in 2023 will result in total itemized deductions over the five-year period of $272,000. The entire amount of the charitable contributions is deductible as it meets the appropriate AGI limitations.
By implementing this bunching strategy, Sam and Sally will yield a federal after-tax benefit of up to $26,640 over five years, which is $72,000 in additional deductions at a top federal rate of 37%. In effect, for married taxpayers with only taxes and charitable contributions, this strategy can yield $18,000 of additional deductions for each year applied.
 
Note: For purposes of this illustration, we are assuming the same standard deduction amount for each year.  In reality, the standard deduction is adjusted yearly for the CPI. The 2023 standard deduction for married filing jointly is $27,700.
Marie Arrigo is a Tax Partner and Leader of the Family Office Tax Services Practice within the Private Client Services Group which provides tax consulting and compliance services to family offices, individuals, trusts and estates, and closely held businesses.
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“EisnerAmper” is the brand name under which EisnerAmper LLP and Eisner Advisory Group LLC provide professional services. EisnerAmper LLP and Eisner Advisory Group LLC practice as an alternative practice structure in accordance with the AICPA Code of Professional Conduct and applicable law, regulations and professional standards. EisnerAmper LLP is a licensed independent CPA firm that provides attest services to its clients, and Eisner Advisory Group LLC and its subsidiary entities provide tax and business consulting services to their clients. Eisner Advisory Group LLC and its subsidiary entities are not licensed CPA firms. The entities falling under the EisnerAmper brand are independently owned and are not liable for the services provided by any other entity providing services under the EisnerAmper brand. Our use of the terms “our firm” and “we” and “us” and terms of similar import, denote the alternative practice structure conducted by EisnerAmper LLP and Eisner Advisory Group LLC.

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