Ep. 63 | Last Minute Tax Moves in 2023

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Intro:

Welcome to the Teaching Tax Flow podcast where the goal is to empower and educate you to legally and ethically minimize taxes paid over your lifetime.

John Tripolsky:

Hey, everyone. Welcome back to episode 63 today on the Teaching Tax Flow podcast. We are gonna jump head first into those year end moves you can still make on your 2023 tax returns. So before we do that and before we take a moment and listen to our sponsor, let's just give a round of applause for all the procrastinators out there. Just kidding.

John Tripolsky:

Shame on you procrastinators. You have a couple days to do some stuff. Don't forget about it. Let's do it. Now, let's listen to our sponsor for today's episode.

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John Tripolsky:

Hey, everybody, and welcome back to the Teaching Tax Flow podcast. Hopefully, you're listening to this as soon as it dropped because, yes, we're talking about things dropping. The ball will be dropping very soon, and, hopefully, you are not one of those slackers that always wishes they did something different the year before. So today, we are going to talk about those last minute moves you can make in 2023 tax year. So best guy I can think about, we bring the brains of the operation into the fold.

John Tripolsky:

Chris Picciurro what's happening, my man?

Chris Picciurro:

Happy holidays. Merry Christmas to everybody that celebrates. We certainly do in our household. We are right at the end of the year. We did a episode, about the top 5 year end tax strategies, and we wanted to do this episode because as we were scrambling around last week purchasing things, buying last minute gifts, getting ready for the end of the year, I thought, well, we really need to talk through some last minute tax moves.

Chris Picciurro:

Not necessarily strategies, because a lot of times strategies include a lot of people and and moving parts that a lot of people are off right now, but what can you do that are easy? Last minute moves, and we're gonna start with individuals, we'll talk about business owners, and we'll talk about rental property owners as we get close to the ball dropping. John, I have a fun fact for you.

John Tripolsky:

Oh, boy. Oh, it doesn't have anything to do with pickleball this time because, you know, we did an episode where we didn't mention pickleball, but I thought he would miss something.

Chris Picciurro:

Yeah. No. It does not have to do with pickleball. Indirectly, it does. But if if you don't know this and you're just listening to this podcast for the first time, this podcast was born in Panama City Beach, Florida.

Chris Picciurro:

John and I, we go down there quite a bit. We have a place down there, and, and we we use it a lot for strategic planning, for retreats, and we started this podcast with a pizza box on, in our living room at our place in Panama City Beach. The reason I'm bringing this up is that Panama City Beach has something, a place called Pier Park, which is really cool, and they have a ball that drops. It's a beach themed ball, and the USA Today just voted as the number one ball drop in the United States. Fun fact.

John Tripolsky:

I was waiting for you to say that the pizza box, you know, we're having it delivered up here, and, you know, we're, what, 2,000 1500 miles away or so from that, but, you know, now I'm hungry. It's all good.

Chris Picciurro:

I know. Well, you know what? The other thing but, oh, I guess I get tied into pickleball. As you know, John, when I'm at Panama City Beach, I befriended a group of players now. And, so if you're a PCB or or 30 a or Dustin and you are looking to play pickleball, let us know, and I can get you in with our group.

Chris Picciurro:

But that's not the last minute, that there's other new last minute taxes, though.

John Tripolsky:

And you know what, Chris? I'm actually I'm gonna attempt to make a pickleball dad joke reference here. So anybody that's familiar with the game, and I'm probably gonna botch this up, but, you know, speaking of the ball dropping and making these last minute moves related to taxes, let's drop 1 in the kitchen. So where, where should we actually start here? Right?

John Tripolsky:

Actually, you know what? You know what, Chris? Chris? Actually, if you can kinda differentiate I know you mentioned it briefly. You know, we talk a lot about strategies.

John Tripolsky:

So those are the ones that, you know, take a little bit more time, most of them, little bit more effort. So let's draw that line between what's a move and what's a strategy. We don't have to go into the strategies, but let's just kinda throw some of those out there. So these are things that you mentioned somebody can not even we're not even talking about implementing. We're talking about doing.

John Tripolsky:

So these are more task oriented versus strategy based. Correct? Would that be a good

Chris Picciurro:

way to put it? Here's the best analogy I could think of. Why my wife likes us to basically rinse off all the dishes before they go in the dishwasher? Isn't the dishwasher supposed to be washing the dishes? I don't know.

Chris Picciurro:

And thank goodness she doesn't listen to this podcast, so she's not gonna be in the south. A a tax move is basically rinsing the dishes off before they go to the dishwasher. Attack strategy is running the dishwasher. It's more in-depth. Okay?

Chris Picciurro:

So a move can be a strategy, but most of the strategies that we talk about, involve, what we call implementation partners or people working in your personal board of directors to make things happen. A move is something you could do on your own quickly, nimbly, and in the last week or so of the year to get you the best result possible, legally and ethically reduce the tax you pay in your lifetime. So these are things that you could do on your own. You don't need to call anyone. You can get thing these things done in the last week or so of this year, and that's what I would define as a tax move.

Chris Picciurro:

I expect that Investopedia will be listening to this podcast and put this in their library.

John Tripolsky:

There we go. There we go. So I know we talked, you know, we mentioned we're gonna do we're gonna touch a little bit on individual, little bit on business, and then a little bit on their rental properties. So maybe that's the best place to start. So let's talk a little bit about the individual side.

John Tripolsky:

So what are maybe some of the most common, but also maybe some of the moves that people may forget about or maybe they don't place an emphasis on. And we are at date of recording, we are roughly, you know, 7 or 8 days out from it being too late. So maybe run us through a couple of those.

Chris Picciurro:

So on the individual side, the first thing we're gonna talk about are and we had a podcast episode on this, itemized versus standard deductions. And with the standard deduction being much higher under the Tax Cuts and Jobs Act, a lot of people that were right on the fringe of itemizing their deductions, meaning listing out allowable personal deductions on your tax return and offsetting your income versus taking the standard deduction was diminished. So now what people do sometimes is they group their itemized deductions and maybe pay a little more into 1 year to take advantage of their itemized deductions and then take the standard deduction the next year. You also have taxpayers that itemize their deductions every year no matter what. So let's talk about some of the itemized deductions that you could take advantage of before the end of the year because people are cash basis taxpayers.

Chris Picciurro:

Meaning, if you wrote that check and got it in the mail, if you made that payment before December 31st, before that ball drops, then you get a deduction on your 2023 return. So one of the things would be charitable contributions. So charitable contributions, a lot of people make charitable contributions right at the end of the year. John, I could tell you, I you know, we had a we have a mini lesson. We talked about, you know, should you have a garage sale or should you just donate property?

Chris Picciurro:

We talked about that, but I actually cleaned out, some parts in my areas of my home, personal residence, and I rolled over to Goodwill and I donated a bunch of clothing, right, and I did that about a week ago, and I got in my receipt and I listed it out and I took a picture. So that would be a nice way to, 1, get your house cleaned up, but, 2, get that noncash deduction in before the end of the year. Now that's something really easy. The other thing is any type of cash contributions or donations, do those before the end of the year, especially if you're gonna itemize your deductions. So basically accelerating those contributions.

Chris Picciurro:

So those are the easier easier ones. There are some more advanced charitable contribution planning that you really it's hard to do as a last minute move, But I would say just donating clothes, donate those noncash items, and donating cash or charitable contributions before the end of the year if it's something let's say it's a gift you were gonna give a church or a synagogue or something the 1st week of January. You might as well give it to them this year if you're gonna itemize your deductions. There are some more advanced charitable giving strategies that that that we could discuss in the future, but that's not necessarily a a year end move if you if I

John Tripolsky:

And those ones too when we we just did a podcast to drawing a blank on the number here, but, you know, within the within the past month, I'd say within the past 4 to 6 weeks, I remember we did one great show on the topic specifically, and that's one that obviously takes a little bit more time and planning. You have other individuals, other parties involved, so that's a good one to, you know, plan to plan ahead of time. So going into 24, now you're learning something in 23 that you can execute in 24, and then

Chris Picciurro:

come the end of year next year, you have zero excuses for being late to the party. Absolutely. Another another itemized deduction. So with the Tax Cuts and Jobs Act of 2017, we are limited to if you itemize your deductions on the federal return. Now some states do allow, additional itemized deductions for this, but up to $10,000 of state and local income tax.

Chris Picciurro:

Now in people for for for taxpayers that live in a high tax state, state incomes high income tax state, so you're New York, you're New Jersey. You know, we always gotta throw California in there. You're gonna meet that $10,000 threshold pretty quickly. But for people like myself who live in Tennessee, I get a sales tax deduction, real small. I get my prop my property taxes are real low in my state.

Chris Picciurro:

So if I but let's say I, let's say I sold a property in Indiana and I expect that I'm gonna pay a tax in Indiana. I might as well make that estimated tax payment before the end of the year, even though it's not due till January 15th of the next year, and take the deduction in 2023. So if you are under the state and local income tax threshold of $10,000 and you think you're gonna owe a state or local tax on your 2023 return, even though that estimated tax payment is not due yet, pay it in 2023. Get it in the mail, get it stamped, and get it out. Now they might not cash the check till January 2nd 3rd, but as long as you sent that out, you're gonna be in good shape.

Chris Picciurro:

The other thing to consider when it comes to state and local and taxes, income taxes, is real are real estate taxes. So let's say you own a property. Let's say you're in Florida and you are you're under the $10,000 limit, but you have a second home in Michigan. You're a snowbird. Your prop your winter property taxes are due in February, I think.

Chris Picciurro:

Well, you can pay those in December and take the deduction in 2023, if that makes sense. So bunching those those so a lot what a lot of times people do is they'll pay make 3 real estate tax payments in 1 year, make one real estate tax payment the next year, especially if you're on that threshold of itemizing. So either real estate taxes or income tax, if it makes sense to to if you're gonna owe it in the 1st couple months of 2024 anyway, and you're under these sales tests, the $10,000 salt limit, and you're itemizing, make those payments before the end of the year. And that's a really good opportunity for individuals.

John Tripolsky:

And, Chris, here's a question for you actually on that one too, and I'm sure there's a right answer for the south there somewhere. But for example, like what you just mentioned, making that payment. So you say you're making a out of state tax payment, say, for whatever reason, you can't do it online, say you're mailing in a check. So I will say just by IRS requirements, regulations, whatever you wanna say. How does that actually do they like, how do you date this?

John Tripolsky:

Is it the good old standard day? This is the date of the check. Hey. This is the postmark date. Do I need to take a picture of this?

John Tripolsky:

What's the best way if somebody wants to, say, mail a payment on the 30th? Because we know on 31st, chances are your mail is not gonna go out. So what does that look like? What what does somebody have to do if they really wanna push the envelope for a date?

Chris Picciurro:

Oh, nice pun with your pushing envelope. Well, obviously, most payments are done before the end, but, you know, electronically. Most people that have an escrow account, you'll notice that those winter property taxes are paid before the end of the year by your escrow agent. But if you had to mail a check, the best bet is to just mail a, registered return receipt requested. Now that's a little overkill sometimes because that could get expensive.

Chris Picciurro:

So what I would do is I would write a check on the actual day you're writing the check, put a stamp on it, put it in the mail, and and if you really wanna take a picture of on your phone, because it's usually dated of you putting it in the mailbox, you could. But the bottom line is as long as it's postmarked, then you're gonna be alright, so that that's the, you know, to to pay for the return receipt requested if you're mailing a $500 property tax payment doesn't really make sense. Right. Right. No.

John Tripolsky:

That that's a good point too. Because, yes, some people I mean, I'm I'm almost putting myself in my my father's shoes, who, Chris, you know very well. Very organized gentleman. Very, very, very well organized, we should say. But he does.

John Tripolsky:

You know, he's he's pretty conservative on, you know, oh, wait. I'm not gonna wait till last day to do something. So if if that's the case, you know, that's like you mentioned, most of them are done electronically. But if you are mailing it in, that's a that's a good option.

Chris Picciurro:

I mean, you could always just go you could always just go to the if if you live in the city, go to the city office and pay it right there if you wanted to. And I'm sure your dad would be in line 5 minutes before the door opens ready to pay, and that's a compliment to him. Oh, absolutely. Absolutely. I We wish we could be his organized.

Chris Picciurro:

I know. Well, let's hit on a couple more on these on the personal side. One of these we did mention, but harvesting capital losses. Let's say you have a brokerage account that you have losses and you wanna take that up to $3,000 deduction on your tax return or offset capital gains and take the $3,000 deduction, that's a lot of times something that you could do on your own. Again, don't expect you're gonna call your financial adviser on December 30th.

Chris Picciurro:

I hope they're on vacation with their family, but these are for accounts that maybe are self managed. They can just log in and harvest those losses. So harvesting investment losses in a brokerage account is something or it could be cryptocurrency. It could be anything. That that that's something you could do that's quick.

Chris Picciurro:

Just log in and take care of that. That's an that's another thing. For those of people that are gifting so we have a lot of people that gift assets to either children or grandchildren. We're gonna dive in a little bit more to estate tax planning, estate tax exemptions. But if you have someone that has a large estate, a lot of times they're trying to get money out of that estate legally and ethically, and they there's they can gift, amounts to other people.

Chris Picciurro:

Doesn't have to even have to be a family member. And and a lot of times, they wanna do that right before the end of the year. So that's something that is obviously consult some that should be a plan, that you have in place already, but gifting or executing those gifts before the end of the year is something that, that we see a lot of. So not not a lot of, but but that's something that that you can do kinda quickly that could help that could help out. The final one I wanna talk about, something quick on the personal return, has to do with the retirement plan.

Chris Picciurro:

Now we're not talking about retirement plan contributions, we're talking about retirement plan distributions. Now, we've talked about this before, but there's the Roth conversion. So there's a Roth conversion that could be done before the end of the year. There is a, if you're in a situation where you're over 59a half and you can make a distribution from a retirement plan before the end of the year and not pay a 10% penalty and you're in a really low marginal tax bracket, you might wanna accelerate that income. The other thing is there's something called a backdoor Roth, contribution.

Chris Picciurro:

And this one, again, if you haven't done it before, I wouldn't suggest you try your first backdoor Roth with a week left in the year, by yourself. But if you've done it already, what the strategy is is that if you're over, if you're at the income limit to make a tax deductible traditional IRA contribution, you can make a nondeductible traditional IRA contribution and immediately convert it to a Roth. So this is a strategy. Again, if you've not done this before, I don't suggest doing it right now. But for a lot of people, that's just part of their annual plan, and that's something that you could do relatively quickly.

Chris Picciurro:

Again, you're gonna probably want to, to work with a financial adviser on that. But if they're if they're around, you might be able to execute that before the end of the year. But that one that one there is again, that one, it's a little tricky, so I wouldn't suggest that just for anyone, but the harvesting, the charitable contributions, and the paying of taxes, harvesting losses, that is, those are the ones that I think are the easiest moves that you can make before the end of the year. One more thing. Let's say you have a mortgage payment due January 1st and the money automatically comes out of your account on January 1st.

Chris Picciurro:

If you wanna grab that mortgage interest deduction in in the current year, maybe move that payment up a few days and make sure that payment hits right at the end of this year. And that for the individual last minute moves. Awesome.

John Tripolsky:

Awesome. And then, obviously, kind of shifting gears a little bit from the individuals. I know business, there's a handful as well. What are some some quickies for the business owners out there?

Chris Picciurro:

Right. So for the business owners excuse me. What we recommend for business owners would be potentially, pay out any type of year end bonuses before the end of the year to employees, especially, the vast majority of business owners are cash basis instead of accrual basis. So, in the theory is accelerate your deductions into 2023. So anything you know, if you have a bill for your shredding company and and it's due January 5th, well, pay it today.

Chris Picciurro:

If you have any type of bills that are gonna be due in the beginning of the year, move those expenses into to 2023 and take the deduction for it. That could be even employee bonuses. That could be normal expenses, office supplies. It could be, hey. I need a new printer.

Chris Picciurro:

Let me get this printer this year. Now when it comes so and and that dovetails into if you have any equipment purchases or furniture purchases or anything around the office that you need. Consider doing it this year before next year, and this is a slower time of year anyway. Now one caveat is is if you're going to make a furniture, fixture, or even vehicle purchase. A lot of times people are scrambling around trying to purchase a vehicle.

Chris Picciurro:

Don't necessarily advise that unless it's well thought out. We say don't let the tax tail whack the dog. The asset has to be placed into service that year. So let me give you an example, John. Someone is a a self employed, graphic designer.

Chris Picciurro:

They need a new they want a new computer. It's a significant purchase. It's $5,000. They place the order. Even if they pay for it in 2023, if they don't receive that computer and start using in 2023, it's really a 2024 expense.

Chris Picciurro:

So that's something to consider, but I would say for business owners, my biggest advice would be accelerate deductions into 2023, and that could be, again, payroll, normal business deductions, or equipment purchasing equipment. Those are my, you know, those are my best advice for the business owner. That's some great advice too for the business owners that are out there. I mean,

John Tripolsky:

if really for a lot of smaller, you know, SMBs or small, medium sized businesses where a lot of those payments, yeah, they they always come out every month. Right? On the first, second, 7th, 8th, 10th, whatever it is, shift them forward a few days. I highly doubt that the recipient of those payments is gonna say, nope. We don't want it early.

Chris Picciurro:

Exactly. I mean, I'm I'm part of a lot of professional associations where the you know, I've got an invoice due January 5th or January 15th. It's like, let's just pay it now. Let's just get that deduction into 2023. Now, finally, for real estate, real estate investors or rental property owners, very similar to the business owners.

Chris Picciurro:

I mean, obviously, if you have a mortgage, you could accelerate that deduction. When you but my number one for real estate owners would be pay those property taxes, even if they're winter taxes and not due till February, pay them in 2023 because that SALT, that $10,000 SALT state and local income tax deduction I talked about on the personal return, that rental properties are exempt from that. So if you have 5, 6, 7 rental properties, pay all those taxes this year, get deduction 2023, you're not subject to the SALT tax limitations on your rental properties. So, again, accelerate deductions for the rental properties, buy things that you might need, especially our friends that are short term rental properties. If you need new towels, if you need new linens, anything like that, why don't you get those purchased and get those into the properties, you know, before the end of the year and accelerate deductions into the property.

Chris Picciurro:

Now I'm not saying go buy things you don't need, but if you've got a television you've been meaning to replace in in one of your rental properties or short most likely a short term rental property or you own a commercial rental property, get that stuff done before the end of the year and take the deduction. My thought is the real estate taxes are a no brainer because you're gonna own, typically, you're gonna own by February anyway. So that's that's why I'm best for the rental property owners, and and then, you know, and then go from there. Now if you own a rental property and let's say you have a tenant that says, Hey, I wanna pay for my whole 2024 on December 30th. You might say, hey.

Chris Picciurro:

We appreciate you paying for the whole year in advance. They let's let's let's once you hold out of that money, let's get together January 4th, and you can come in and pay that money or or make that payment. So so you don't want to instantly push income into 2023, on purpose. You want to same with the business owners. You wanna and you wanna accelerate those deductions.

John Tripolsky:

Some well, if somebody's renting some commercial space for me and they try to push it out on you, well, then they listen to this podcast before you did, and they're taking advantage of it on their side. And now you're the recipient. But awesome, Chris. Well, thank you so much for diving into those 3 with us. I think we covered some good basis, obviously, on the real estate side, the individuals.

John Tripolsky:

So I know a lot of our listeners, really are just individual taxpayers, but then also on the on the business side. So I think we covered all of our bases. There's my sports pun again for today. I'm trying. I'm really trying.

John Tripolsky:

And then the one piece of advice that I will give to everybody on this episode is don't wait until this time next year to take advantage of these. You won't be in such a rush. So that being said, we expect you to do that next year, and you can expect to see us back here next week, same time, same place on the teaching tax flow podcast. Thanks for hanging out with Chris and I today on this podcast. As I mentioned in the beginning, shame on you procrastinators.

John Tripolsky:

If you waited this long, it's okay. It's all about self improvement. Next year's a new year. You plan ahead a little better. It's all good.

John Tripolsky:

But all joking aside, hopefully you got some great information from this. Hop on to defeating taxes.com. That is our private Facebook group. This is your personal invite. Join the group.

John Tripolsky:

Let's do this. Let's tackle taxes together as we jump into the new year here within a couple of days. So enjoy the last few days of 2023 and we will see everybody next year. Adios. Peace out.

John Tripolsky:

Later. Catch you on the flip. Whatever way you can think of it. Whatever you wanna call it. Let's get ready for the best year ever.

John Tripolsky:

Everybody have a happy new year and we will see you next year.

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Investment advisory services are offered through Cabin Advisors, a registered investment adviser. Securities are offered through Cabin Securities, a registered broker dealer.

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Ep. 63 | Last Minute Tax Moves in 2023
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