Year-End Financial To-Do: Should You Take or Defer Gains and Deductions This Year?

Dec 15, 2022

By Jeffrey R. Wolfe, Esq., Senior Vice President and Manager, Wealth Planning Strategies

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Take or Defer Gains and Deductions?

It’s been a wild year. Market fluctuations, inflation woes and a mid-term election have provided a unique experience. Given these events, coupled with year-end planning, now is a good time to review your tax situation for opportunities to pay less taxes or pay taxes at a lower rate. Consider reviewing your portfolio, other investments and your projected income to see where you may find yourself on the tax bracket spectrum. Once you’ve estimated where you are, work with your tax advisor to see whether you should take or defer certain gains or deductions in this year or the next.

For example, you may be able to take a gain on an investment this year or postpone it until January. If you think your tax rate will be lower next year, it may make sense to postpone the gain until 2023. Similarly, if you are considering making a charitable donation and you expect your income (and tax rate) to be lower next year, consider making the donation this year to offset your higher tax rate for this year. If you pay state estimated taxes, you could make your last quarterly payment in December rather than January to take the deduction this year. Ultimately, if you can control when to take a gain or deduction, choosing the appropriate time to take such actions can help you control your potential tax liability year over year.

Given the large increase in the standard deductions in 2023, these techniques are especially critical to review this yearend. Recall that the standard deductions for 2022 is $12,950 for those filing single; $25,900 for married filing jointly. However, the 2023 deductions leap to $13,850 single/$27,700 married and itemized deductions remain limited as well. Charitable gifts, mortgage interest and state and local taxes (with a cap on state and local deductions being $10,000) comprise most itemized deductions. Accordingly, you may want to review your options to determine if taking or deferring gains or deductions may be affected by these large standard deductions.

These are complicated and time sensitive decisions. Please remember Benjamin F. Edwards does not provide tax advice, so it is important to consult with your tax professional for guidance tailored to your specific situation. Doing so may lessen the tax blow for this year and the year to come.