Ed shares some valuable tax tips for federal employees to review before the year ends.
There are less than two months remaining in the year 2023. As the year draws to a close, there are some tax moves that federal employees and retirees may want to perform over the next 5 to 7 weeks in order to lower their 2023 federal and state income tax liabilities. This column presents three of these tax moves. These recommended tax moves are particularly appropriate to those employees and retirees who invest in non-retirement (taxable) brokerage accounts.
Two items that should be kept in mind. First, when making any of these year-end tax moves, employees and retirees are advised to focus primarily on their overall financial goals rather than merely saving on taxes. Second, a particular tax move that is recommended for one individual may not be appropriate for another individual. Any employee or retiree who is considering making any of these tax moves should first discuss with their financial advisor whether or not a particular tax is appropriate to him or her.The following are some specific tax rules regarding “tax-loss harvesting”:
Those investors who own appreciated stock (stock owned for more than a year) may want to consider donating the stock to a qualified charity. That allows those investors who itemize on their federal income tax returns (they file IRS Schedule A) to deduct the fair market value of the stock shares. They will not owe capital gain tax on the increased value of the stock shares and qualify for a charitable tax deduction. Investors who are considering stock donations should check with their tax advisors to get additional information about IRS rules concerning stock donations to qualified charities.
Another technique to save on taxes is with a qualified charitable distribution (QCD). With a QCD, an individual who is at least 70.5 years old can transfer as much as $100,000 a year from an IRA directly to a charity. The distribution and transfer of IRA funds to a qualified charity is not a taxable event. Also, a QCD can count toward the annual required minimum distribution (RMD) for IRA owners who have reached their required beginning date (age 70.5, 72, 73 or 75 depending in which year they were born) and therefore must take IRA RMDs every year. The result is tax savings because an RMD is fully taxable.
To qualify as a QCD, the donation must go directly from the IRA to a qualified charity. It is also important for the IRS owner to get a receipt or acknowledgement from the charity before one’s income tax returns are filed.
Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street – Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
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