INFORMATION PUBLISHED AS OF OCTOBER 2023
2023 Year-End
Tax Planning Guide
Investment and Insurance Products are:
Table of contents
Remaining important tax deadlines for 2023 3 .................... ...............................................................
...........................................
.....................................
...............................................................
..............................................................
.......................
................................
...............................
........................................................................
.....................................................................
.....................................................
................................................................................
2023 income tax rate schedules 4
Capital gains, losses, and dividends 6
Retirement accounts 9
Estate and gift taxes 14
Federal trust and estate income tax rates 15
Social Security 16
Medicare surtax 17
Charitable contributions 18
Kiddie tax 22
Education planning 23
............................................................. Real estate investors 26
Alternative minimum tax (AMT) 28
............
......................................
Long-term care deduction for policy premiums 28
Health savings account (HSA) limits 29
Connect regularly with your advisors 30
For simplicity and ease of comprehension, this guide focuses on federal tax law;
it does not discuss state or municipal laws in the 50 states, District of Columbia,
or U.S. territories. Nevertheless, the impact of state and municipal laws can be
significant. We recommend discussing state and municipal laws with your legal
and tax advisors to determine the impact before taking any action. Information
in this guide is accurate as of publication date; any future legislative changes
may impact its accuracy.
2
Remaining important
tax deadlines for 2023
2023 deadlines are approaching for many strategies to reduce your tax bill. Review the checklist below and discuss these
strategies with your advisor and tax advisor.
Now
Ask your advisors for a realized and unrealized gain/loss report.
Review your portfolio with your advisors to help ensure your asset allocation still aligns with
your goals.
Meet with your tax advisor to prepare preliminary tax projections and evaluate whether to
accelerate or defer income and expenses.
Review tax-loss selling strategies with your advisor. Remember, the last day to “double up”
a position to help avoid a wash sale is November 28, 2023.
Determine if you need to make any adjustments to tax withholding or estimated payments.
Soon
Create or add funds to your education savings program.
Develop a plan to complete charitable and family member gifts by year-end.
Consider funding an FSA or HSA during your employer's annual benets enrollment period.
Before December 31
Discuss with your tax advisor whether qualied charitable distributions (QCDs) from your
IRA are appropriate for you if you are age 70½ or older.
Make maximum contributions to your employer retirement accounts. If contributing to your
IRA, the deadline is April 15, 2024.
Sell securities by December 29, the last trading day in 2023, to realize a capital gain or loss.
Remember to take your Required Minimum Distributions (RMDs) from retirement accounts
this year, if applicable.
Complete any Roth IRA conversions.
Make gifts to individuals or charities. The annual gift tax exclusion amount for 2023 gifts to
individuals is $17,000.
If you own company-granted stock options, determine whether now is the time to exercise
or disqualify them.
3
2023 income tax rate schedules
These are the tax tables in eect for 2023 as of publication. Keep in contact with your advisors throughout the year to stay
current with any changes.
Married taxpayer ling jointly/surviving spouse rates
Over But not over
$0 $22,000
$22,000 $89,450
$89,450 $190,750
$190,750 $364,200
$364,200 $462,500
$462,500 $693,750
$693,750+
Tax
+ % on excess
$0 10% $0
$2,200.00 12% $22,000
$10,294.00 22% $89,450
$32,580.00 24% $190,750
$74,208.00 32% $364,200
$105,664.00 35% $462,500
$186,601.50 37% $693,750
Single taxpayer rates
Over But not over
$0 $11,000
$11,000 $44,725
$44,725 $95,375
$95,375 $182,100
$182,100 $231,250
$231,250 $578,125
$578,125+
Tax
+ % on excess
$0 10% $0
$1,100.00 12% $11,000
$5,147.00 22% $44,725
$16,290.00 24% $95,375
$37,104.00 32% $182,100
$52,832.00 35% $231,250
$174,238.25 37% $578,125
Head of household rates
Over But not over
$0 $15,700
$15,700 $59,850
$59,850 $95,350
$95,350 $182,100
$182,100 $231,250
$231,250 $578,100
$578,100+
Tax
+ % on excess
$0 10% $0
$1,570.00 12% $15,700
$6,868.00 22% $59,850
$14,678.00 24% $95,350
$35,498.00 32% $182,100
$51,226.00 35% $231,250
$172,623.50 37% $578,100
1. Taxable income is income after all deductions (including, but not limited to either itemized or standard deduction).
Information in all tables from irs.gov unless otherwise specied
4
Married taxpayer ling separately rates
Over But not over
$0 $11,000
$11,000 $44,725
$44,725 $95,375
$95,375 $182,100
$182,100 $231,250
$231,250 $346,875
$346,875+
Tax
+ % on excess
$0 10% $0
$1,100.00 12% $11,000
$5,147.00 22% $44,725
$16,290.00 24% $95,375
$37,104.00 32% $182,100
$52,832.00 35% $231,250
$93,300.75 37% $346,875
2. Taxable income is income after all deductions (including, but not limited to either itemized or standard deduction).
Standard deductions
Married/joint $27,700
Single $13,850
Head of household $20,800
Married/separate $13,850
Dependents $1,250
For dependents with earned income, the deduction is the greater of $1,250 or earned income +$400 (up to the applicable standard deduction amount of $13,850).
Additional standard deductions
Married, age 65 or older or blind $1,500³
Married, age 65 or older and blind $3,000³
Unmarried, age 65 or older or blind $1,850
Unmarried, age 65 or older and blind $3,700
3. Per person
5
Capital gains, losses,
and dividends
Short-term capital gains (gains on the sale of capital assets held one year or less) are taxed at the
ordinary income tax rate for individuals and trusts regardless of ling status. Long-term capital gains
tax rates are not tied to the tax brackets.
The table below shows long-term capital gains tax rates. Qualied dividends are taxed at long-term
capital gains rates, while nonqualied dividends are taxed at ordinary income tax rates. Your nancial
professional can work with you and your tax advisor to help determine whether realizing portions
of your portfolio’s gains (and losses) can help manage the tax impact of activity in your investment
portfolio.
Single $0 – $44,625 $44,626 – $492,300 $492,301+
Married ling jointly and
surviving spouse
$0 – $89,250 $89,251 – $553,850 $553,851+
Head of household $0 – $59,750 $59,751 – $523,050 $523,051+
Married ling separately $0 – $44,625 $44,626 – $276,900 $276,901+
Trusts and estates $0 – $3,000 $3,001 – $14,650 $14,651+
4. Determine the capital gain bracket(s) by adding your net long-term capital gains and/or qualied dividends to your other taxable income net of deductions.
(Multiple rates may apply.) Higher rates apply to collectibles and unrecaptured Section 1250 gains. Consult your tax advisor about how this applies to
your situation.
Netting capital gains and losses
1. Net short-term gains and short-term losses.
2. Net long-term gains and long-term losses.
3. Net short-term against long-term.
4. Deduct up to $3,000 of excess losses against ordinary income per year.
5. Carry over any remaining losses to future tax years.
6
Tax loss harvesting
Capital loss harvesting may be used to reduce taxes on other reportable capital gains. This requires
selling securities at a value less than their adjusted cost basis to create a loss, which is generally used
to oset other recognized capital gains for the year. With the potential for volatility in the market,
harvesting capital losses should not be limited to the end of the year. Instead, consider reviewing
this strategy with your advisor throughout the year, which may help you take advantage of market
swings, avoid wash sale situations (the purchase of a "substantially identical" security within 30 days),
understand the impact on dividend distributions and transaction fees, and make sure it works with
your overall wealth management strategy.
Remember, when executing transactions intended to aect your tax bill, the trade date — not the
settlement date — determines the holding period for most transactions. This will in turn determine
whether an asset is held long-term or not. Be sure to work closely with your tax advisor as well
regarding how tax loss harvesting may impact your tax situation.
Rebalance your investment portfolio
With volatility oftentimes a risk in the market, it is important to review your investment portfolio
to determine if rebalancing is necessary to help maintain your desired asset allocation. You may have
some or all of your accounts set up to automatically rebalance. However, if you do
not have automatic rebalancing, it is important to review your entire portfolio,
including both taxable accounts and assets held in tax-advantaged accounts
(such as your IRAs and 401(k) accounts) to see if any changes may be necessary.
7
Avoid purchasing new mutual funds with large expected capital
gains distributions
Like other types of securities, you realize capital gains on your mutual fund holdings when you sell
them. However, a unique feature of mutual funds is their potential annual distribution of capital gains
(and losses) to shareholders. Companies that manage mutual funds announce the amount of capital
gains to be distributed to shareholders near the end of the year.
The announcement includes:
• A record date (the date of record for shareholders to receive a distribution)
• An ex-date (the date the security trades without the distribution)
• An amount typically expressed as a percentage of a shareholder’s position
– For example, a 10% distribution on a $100 investment would equal a $10 distribution
For investors looking to rebalance their portfolios, mutual fund distributions can be problematic. A rule
of thumb is that you typically don’t want to buy into capital gains distributions. When reallocating
your rebalanced proceeds to a new mutual fund near year-end, pay attention to the date of its annual
capital gains distribution to avoid any unexpected tax consequences.
There are risks associated with investing in mutual funds. Investment returns uctuate and are subject to
market volatility, so that an investor’s shares, when redeemed or sold, may be worth more or less than their
original cost.
Wash sale rules
A wash sale occurs when a security is sold at a loss and the same security, or a substantially identical
security, is purchased within 30 days before or 30 days after the sale date. When a wash sale occurs,
the loss recognized from the transaction is disallowed and is unable to be used to oset other gains.
Instead, the amount of the disallowed loss will be added to the basis of the repurchased securities.
The rule was developed to prevent investors from creating a deductible loss without any market risk.
A wash sale can be avoided by purchasing the identical security more than 30 days before the
loss sale or more than 30 days after the loss sale. A security within the same sector but that is not
substantially identical may be purchased at any time before or after the loss sale and will not trigger
the wash sale rules.
8
Retirement accounts
401(k), 403(b), Governmental 457(b) plan contribution limits
Employee maximum deferral contributions $22,500
Catch-up contribution (if age 50 or older) $7,500
Combined limit for designated Roth account and pretax 401(k), or 403(b) deferral contributions is $22,500 for those younger than 50 and $30,000 for those 50 and
older within a particular tax year.
Traditional and Roth IRAs
Maximum contribution $6,500
Catch-up contribution (if age 50 or older) $1,000
• The total contribution to all of your Traditional and Roth IRAs cannot be more than the annual
maximum for your age or 100% of earned income, whichever is less.
• Roth IRA contributions can be made at any age as long as you, or your spouse, if ling jointly,
have earned income and are at or under modied adjusted gross income (MAGI) phase-out limits.
• There is no maximum age for making Traditional IRA contributions, as long as you, or your spouse
if ling jointly, has earned income.
• Roth contributions are not tax-deductible.
• You can contribute to an IRA whether or not you contribute to a workplace retirement plan,
such as a 401(k), 403(b), SEP IRA, or SIMPLE IRA, as long as you have enough earned income
to cover the contributions.
• Monday, April 15, 2024, is the last day to establish and/or make contributions for 2023 for
Traditional and Roth IRAs and Coverdell Education Savings Accounts (ESAs) — no extension.
• Contribution deadline extensions apply to employer contributions with SEP and SIMPLE IRAs.
9
Traditional and Roth IRA — what’s right for you?
Traditional IRAs oer tax-deferred growth potential. Generally, you do not pay taxes on any
investment earnings until you withdraw or “distribute” the money from your account, presumably in
retirement.⁵ Exceptions may apply. Additionally, depending on your income, your contribution may be
tax deductible.
Roth IRAs oer tax-free growth potential. Investment earnings are distributed tax-free, if the account
has been open for more than ve years and you are at least age 59½, or as a result of your disability,
or using the rst-time homebuyer exception or taken by your beneciaries due to your death.
5
Since
contributions to a Roth IRA are not deductible, there is no tax deduction regardless of income. If your
income exceeds the modied adjusted gross income (MAGI) limit, you are not eligible to contribute to
a Roth IRA.
When deciding which IRA might be appropriate for your situation, be sure to consider such factors as:
• Your current and future tax rates, as well as your current income
• When you will need these funds and for what purpose
• Potentially tax-free income in retirement or a tax deduction now
• Whether you’d like the exibility of not taking required minimum distributions (RMDs)
• Your access to other forms of retirement income
5. Traditional IRA distributions are taxed as ordinary income. Qualified Roth IRA distributions are not subject to state and local taxation in most states. Qualified
Roth IRA distributions are also federally tax-free, provided a Roth IRA has been open for more than five years and the owner has reached age 59½, or disabled, or
using the first-time homebuyer exception, or taken by their beneficiaries due to their death. Both may be subject to a 10% additional tax if distributions are taken
prior to age 59½.
10
Traditional IRA deductibility limits
Full deduction if you and your spouse are not covered by a workplace retirement plan⁶, regardless of
income.
If you and your spouse are covered by a workplace retirement plan⁶, deductions are phased out based
upon MAGI:
Up to $116,000 Up to $73,000 Full
$116,000 – $136,000 $73,000 – $83,000 Phased out
$136,000 or more $83,000 or more None
If your spouse is covered by a workplace retirement plan⁶ but you are not, your deductions are phased
out based upon MAGI:
Up to $218,000 N/A Full
$218,000 – 228,000 Up to $10,000 Phased out
$228,000 or more $10,000 or more None
Roth IRA contribution phase-out limits
Contributions are subject to the following MAGI limits:
Up to $218,000 N /A Up to $138,000 Full
$218,000 – $228,000 Up to $10,000 $138,000 – $153,000 Phased out
228,000 or more $10,000 or more 153,000 or more None
SEP, SIMPLE IRAs, and other retirement plan limits⁸
Maximum elective deferral to SIMPLE IRA and SIMPLE 401(k) plans $15,500
Catch-up contribution for SIMPLE IRA and SIMPLE 401(k) plans (if age 50 or older) $3,500
Maximum annual dened contribution plan limit $66,000
Maximum compensation for calculating qualied plan contributions $330,000
Maximum annual dened benet limit $265,000
Threshold for highly compensated employee $150,000
Threshold for key employee in top-heavy plans $215,000
Maximum SEP contribution is lesser of limit or 25% of eligible compensation $66,000
Income subject to Social Security $160,200
6. The “Retirement Plan” box in Box 13 of your W-2 tax form should be checked if you were covered by a workplace retirement plan.
7. Your ling status is considered single for IRA contribution purposes if you did not live with your spouse during the tax year.
8. For 401(k), 401(k) SIMPLE, prot-sharing plan, money purchase plan, SEP IRAs, and SIMPLE IRAs distributions are subject to ordinary income tax and may be
subject to an IRS 10% additional tax for early or pre-59½ distributions.
11
Consider converting to a Roth IRA
Roth conversions
One way to benet from tax-advantaged growth potential and possible tax-free distributions may be to convert
your Traditional IRA or qualied employer sponsored retirement plan (QRP) eligible rollover distribution to a Roth
IRA. It is important to remember that you must have a triggering event, such as separation of service, to be eligible to
make distributions from your QRP. At the time of conversion, you will pay the appropriate taxes due, but the benets
of tax-free income in retirement may justify the conversion. One benet is that any earnings would be distributed
tax-free, if the Roth IRA has been open for longer than ve years and you are at least age 59½, or you are disabled,
or you are using the rst-time homebuyer exception.
Roth conversion considerations
Roth conversions are not for everyone and there are numerous factors that are critical in your decision-making.
Consider the following before making a decision to convert:
Features
• Potential tax savings. If you are expecting to be in a higher tax bracket in the future, paying tax now at a lower
rate may be wise.
• No RMDs during your lifetime.
• Generally tax-free distributions for beneciaries, a feature which supports important estate planning options.
• Tax diversication potential. Tax-free distributions may allow for more exibility to manage taxable income in
retirement.
Please keep in mind that rolling over your QRP assets to an IRA is just one option. You generally have four options for
your QRP distribution:
• Roll over your assets into an IRA
• Leave assets in your former QRP, if plan allows
• Move assets to your new/existing QRP, if plan allows
• Take a lump-sum distribution and pay the associated taxes
When considering rolling over your assets from a QRP to an IRA, factors that should be considered and compared
between QRPs and IRAs include fees and expenses, services oered, investment options, when you no longer owe
the 10% additional tax for early distributions, treatment of employer stock, when required minimum distributions
begin and protection of assets from creditors and bankruptcy. Investing and maintaining assets in an IRA will
generally involve higher costs than those associated with QRPs. You should consult with the plan administrator
and a professional tax advisor before making any decisions regarding your retirement assets.
Conversion is not an all-or-nothing proposition, as you can convert all or a portion of
your eligible retirement accounts. Note that a Roth IRA conversion will trigger ordinary
income in the year of conversion and potentially the Medicare surtax on other net
investment income, as the conversion counts toward the calculation of MAGI and may
bump you into a higher tax bracket.
12
Questions to consider
• What is your tax situation and ability to pay for the conversion? Because,
once you convert, you can no longer recharacterize, or undo the conversion.
• Will a conversion push you into a higher tax bracket for the year?
• Do you expect to be in a lower tax bracket in retirement?
• Are you planning to retire in a state without income tax but currently live
in a state with income tax? If so, converting now may cost you more.
• Do you need the converted Roth funds within the next ve years?
• Do you have funds outside of the IRA to pay the taxes on the conversion?
Because taking a distribution from your IRA to pay the taxes due on the
Roth conversion will result in additional income taxes, loss of tax deferral,
and if you are under 59½, the 10% additional tax.
If you are thinking about a Roth conversion, we suggest you speak with your
tax advisor as well as your nancial advisor. They will be able to review your
specic situation and discuss a Roth conversion in more detail.
Qualied charitable distributions (QCDs)
QCDs are a unique tax strategy that allow individuals who are at least age
70½ and have Traditional and/or Inherited IRAs to distribute up to $100,000
indexed for ination, per year directly from their IRA to a 501(c)(3) nonprot
with no federal income tax consequences. As part of your QCD, you may
distribute a one-time $50,000, indexed for ination, QCD paid directly
from your IRA to certain split-interest entities that qualify under the new
rule. Making a QCD will reduce the value of your IRA, thereby potentially
reducing your RMDs. If you le a joint return, the $100,000 limit applies to
each spouse.
Deductible Traditional IRA contributions made beginning at age 70½ may
reduce your QCD amount.
Please consult with your tax advisor.
13
Estate and gift taxes
Applicable exclusion: $12.92 million
Taxes are imposed on transfers, by gift or at death, above an applicable exclusion amount, which is
indexed to ination (currently $12.92 million for an individual). With proper planning, it is possible
for a married couple to use two exclusion amounts. For example, an executor can make a “portability”
election to transfer any unused exclusion from a deceased spouse to a surviving spouse. Consult your
tax and legal advisors to determine the appropriate strategy for applying the portability rules.
Estate tax rate: 40%
The estate tax rate is 40% for any amount exceeding $12.92 million (or exceeding $25.84 million for
married U.S. residents or citizens) with proper planning.
Generation-skipping tax exemption: $12.92 million
Gift tax annual exclusion: $17,000
Each individual may transfer up to $17,000 per person per year to any number of beneciaries
(family or nonfamily) without paying gift tax or using up any available applicable exclusion during
one’s lifetime.
Explore wealth transfer opportunities
There are actions you can take to potentially reduce your future estate tax liability and to maximize
your lifetime gifting. However, make these decisions in conjunction with other wealth planning
decisions to make sure assets pass eectively and eciently and fulll your wishes and the needs
of your beneciaries.
• One action that may pass assets eectively and eciently is paying medical and educational
expenses of your beneciaries. Medical and education expenses paid on behalf of anyone directly
to the institution are excluded from taxable gifts and are unlimited in amount.
• Another possible action is an outright gift in excess of $17,000. While such outright gifts are simple
to execute and can reduce taxable estates, clients are sometimes reluctant to use them due to a lack
of control and concerns about access once gifts are made.
Typically, families with signicant taxable estates are strategic about how best to use the annual
exclusion and their lifetime exclusion gifting by utilizing advanced strategies such as irrevocable
trusts (for example, irrevocable life insurance trusts, spousal lifetime access trusts, intentionally
defective grantor trusts, grantor retained annuity trusts, and charitable split interest trusts), transfers
of interests in entities (such as family limited partnerships and limited liability companies), and other
planning techniques.
14
Modern planning techniques are, in general, increasingly exible, and some may provide
mechanisms to help protect your beneciaries while also allowing you options for maintaining
your own desired lifestyle. Given the market volatility and interest rates at time of publication, some
of these strategies may be that much more impactful at this time. As with any strategy, there are risks to
consider and potential costs involved. Discussions with your advisors can help in the education of how
these strategies work and the role that depressed valuations of certain assets and low rates can play.
A modern wealth planning approach goes beyond minimizing transfer taxes and should incorporate
income tax planning, asset protection, business succession planning, and family dynamics
considerations such as education of heirs and beneciaries to be nancially uent and knowledgeable
about wealth stewardship expectations and/or opportunities.
Many taxpayers reside in states that have their own death, estate, or inheritance taxes.
This topic should also be reviewed with your attorney to see if additional planning can
minimize or eliminate state estate taxes or if any adjustments need to be made to
existing planning as a result of the discrepancy between state and federal estate taxes.
Federal trust and estate
income tax rates
Tax rates⁹
Over But not over
$0 $2,900
$2,900 $10,550
$10,550 $14,450
$14,450+
Tax
+ % on excess
$0 10% $0
$290.00 24% $2,900
$2,126.00 35% $10,550
$3,491.00 37% $14,450
9. See page 6 for corresponding capital gain and qualied dividend rates.
15
Social Security
Social Security and Medicare taxes
In 2023, individuals will be taxed 6.2% in Social Security taxes, up to $160,200 of earnings, at which
point there are no additional taxes. Medicare taxes are applied to 1.45% of earnings and there is no
maximum wage cap. An extra 0.9% may be applied on the earnings over $200,000 for single lers
and for joint lers earning over $250,000. Contact your tax advisor for current Social Security and
Medicare tax information.
Earnings test
The earnings test indicates the level of earnings permissible for Social Security recipients without
incurring a deduction from benets. These limits are indexed to increases in national earnings.
Worker younger than full retirement age $21,240
Year worker reaches full retirement age (applies only to earnings for months prior to attaining
full retirement age)
$56,520
Worker at full retirement age No limit
Maximum monthly benet: $3,627
This benet is for an individual who reaches full retirement age in 2023 and earns at least the
maximum wage base for 35 years.
Information provided by the Social Security Administration.
Taxation thresholds
A certain percentage of an individual’s Social Security benets may be subject to taxation when his or
her provisional income¹⁰ exceeds certain threshold amounts:
Married ling jointly $32,000 – $44,000 More than $44,000
Single $25,000 – $34,000 More than $34,000
Married ling separately 85% taxable¹¹
10. Provisional income generally includes MAGI plus nontaxable interest and one-half of Social Security benets.
11. There is an exception to this rule if you lived apart from your spouse for the entire year. Consult your tax advisor for more information.
16
Medicare surtax
The Medicare 3.8% surtax is imposed on certain types of unearned income of individuals, trusts, and
estates with income above specic thresholds. For individuals, the surtax is imposed on the lesser of
the following:
• Net investment income for the tax year
• The amount by which modied adjusted gross income (MAGI) exceeds the threshold amount in
that year
The threshold amounts
$200,000 $250,000 $125,000
For trusts and estates, the surtax is imposed on the lesser of the following:
• The undistributed net investment income for the tax year
• The excess (if any) of the trust’s or estate’s adjusted gross income over the dollar amount at which
the highest tax bracket begins $14,450 in 2023
Net investment income dened
1. Gross income from taxable interest, dividends, annuities, royalties, and rents
2. Gross income from a passive activity or a trade or business in which you do not materially participate
3. Net gain to the extent taken into account in computing taxable income (such as capital gains) less
the allowable deductions that are properly allocable to that gross income or net gain
Note: The surtax does not apply to nonresident aliens.
1717
Charitable
contributions
Congress recognized that the doubling of the standard deduction under the Tax Cuts and Jobs Act of
2017 would eectively eliminate the ability of many taxpayers to obtain a benet for their charitable
contributions, potentially causing many taxpayers to give less. To counteract this, a change was made
to increase the adjusted gross income (AGI) limitation for cash contributions to a public charity from
50% to 60%.
When deciding to make a direct gift of stock or cash, remember that your deduction may be limited by
your income as shown in the following chart. The limitation is based on the type of organization and
the type of gift.
AGI limitations on deductions for charitable gifts
Public charity 60%
30% using fair market value of the
asset contributed
30% using fair market value of the
asset contributed
Private foundation 30%
20% using fair market value if
the asset contributed is publicly
traded stock
20% using tax/cost basis of the
asset contributed¹⁴
Although the AGI limitation for cash contributions was increased, it is important to consider donating
appreciated property. Generally, if you donate appreciated property that has been held for over one
year, you are eligible to deduct the fair market value without paying income tax on the unrealized gain.
However, you can only deduct up to 30% of your AGI when making these gifts of long-term capital
gains property (to a public charity). Being able to avoid the payment of taxes on the unrealized gain
combined with the charitable contribution deduction may produce a better tax result than donating
cash. A common example would be donating stock held long term that has increased in value since its
purchase (see table on page 19).
12. Long-term property is property held more than one year. Short-term property, held one year or less, is subject to dierent limits.
13. This applies if it will be used by the charity in conducting its exempt functions (for example, art in a museum). Dierent limits apply for tangible personal
property that will not be used by the charity in conducting its exempt functions.
14. If the fair market value of unrelated use property is lower than the tax/cost basis (depreciated asset), the allowed deduction will be limited to the fair market value.
Source: irs.gov, unless otherwise specied
18
Consider donating stock instead of cash
This hypothetical example shows the potential advantages of a charitable donation of stock that
has increased in value during the time the investor owned it (appreciated stock) vs. cash. It assumes
a $10,000 gift; the stock has a $2,000 cost basis and was held for longer than 12 months; and the
investor is in the 37% ordinary-income and 20% long-term capital-gains tax brackets, subject to the
3.8% Medicare tax on investment income, and able to itemize deductions.
†
†
$10,000 Cash $10,000 x 37%= $3,700 n/a n/a
$10,000 Stock $10,000 x 37%= $3,700
$8,000 x
20%= $1,600
$8,000 x
3.8%= $304
†
The amount of income tax saved may be subject to rules that limit charitable deductions as a percentage of AGI. Medicare surtaxes apply to certain higher income
taxpayers.
By donating cash, the investor saves $3,700 in income taxes. However, by donating appreciated stock,
they also save $1,600 in capital gains taxes and $304 in the Medicare tax on investment income they
would have incurred if they had sold the stock instead of donating it. This information is hypothetical
and is provided for informational purposes only. It is not intended to represent any specic return,
yield, or investment, nor is it indicative of future results.
When considering charitable gifting and capturing potential tax deductions, review your tax situation
and carefully determine which assets to give. Gifts made to qualied, tax-exempt organizations
are generally deductible, but as noted in the table on the previous page, are subject to limitations
based on the type of organization (public or private), the asset being gifted, and your AGI. Charitable
contributions that are not deductible in the current year due to AGI limitations can be carried forward
for up to ve years.
• Gifts made via check or credit cards are considered deductible in the current year if the check is
written and mailed or the charge to the credit card posts on or before December 31. Important note:
Since December 31, 2023 falls on a Sunday, dierent deadlines apply. For 2023, check sent by USPS
must be postmarked by December 30. Check sent by FedEx, UPS, or another carrier must arrive by
December 29.
• Gifts of stock are considered complete on the date the brokerage rm transfers title, which can
take several business days (or the date the taxpayer can substantiate permanent relinquishment
of dominion and control over the stock), so be sure to plan these types of transfers well before
December 31.
• Obtain and keep receipts and be aware of any value received for goods or services that may reduce
the value of any tax deduction.
19
Naming a qualied charity as the beneciary of your 401(k) or Traditional IRA upon your death
can keep your estate and your heirs from having to pay income taxes on the distributions from
those retirement assets. The full amount of your retirement assets will benet the named charity
because charities do not pay income taxes. The retirement assets will remain as part of your estate, but
your estate will receive a charitable tax deduction. Alternatively, you can divide your retirement assets
between your loved ones and charity, naming both as beneciaries.
Depending on your circumstances, there are some additional planning options to consider:
• As noted earlier in this guide, QCDs allow individuals who are at least age 70½ to distribute up to
$100,000 indexed for ination, per year directly from their Traditional or Traditional Inherited IRA
to a 501(c)(3) nonprot with no federal income tax consequences. See details discussed earlier in the
IRA section.
• If you are approaching retirement and anticipate lower ordinary income during retirement, you may
nd it benecial to explore making a large gift to a donor-advised fund while working instead of
smaller gifts during retirement.
• A charitable remainder trust (CRT) is a strategy in which annual income is distributed to one or more
noncharitable beneciaries, either for a life term or a term of not more than 20 years.
20
Take advantage of charitable deductions
The higher standard deduction combined with limits on other deductions means fewer people will be
able to deduct their charitable contributions. An option to get a deduction is to bunch your donations
together into one year and take the standard deduction in an alternate year if eligible.
For example, instead of making contributions in December 2023, you can make your 2023
contributions in January 2024. Making your 2024 contributions later during the year might give you
enough to itemize in one calendar year. You could then take the standard deduction in 2023 and
again in 2025, when you don’t make contributions. If you are looking to maximize your charitable
contributions, your tax advisor can assist with determining whether AGI limitations will apply and the
timing of the gifts to fully utilize your deduction.
Donor Advised Fund (DAF)
15
A Donor Advised Fund (DAF) is a charitable giving vehicle which may assist with “bunching” of
charitable contributions into a given year. This can be useful when you are able to make a donation but
have yet to determine the timing of the distributions out of the donor-advised fund or what charities
will receive the gift.
15. Donations are irrevocable charitable gifts. The sponsoring organizations maintaining the fund have ultimate control over how the assets in the fund accounts
are invested and distributed. Donor Advised Funds donors do not receive investment returns. The amount ultimately available to the Donor to make grant
recommendations may be more or less than the Donor contributions to the Donor Advised Fund. While annual giving is encouraged, the Donor Advised Fund
should be viewed as a long-term philanthropic program. Tax benefits depend upon your individual circumstances. Clients should consult their Tax Advisor.
While the operations of the Donor Advised Fund and Pooled Income Funds are regulated by the Internal Revenue Service, they are not guaranteed or insured by the
United States or any of its agencies or instrumentalities. Contributions are not insured by the FDIC and are not deposits or other obligations of, or guaranteed by,
any depository institution. The Donor Advised Funds are not registered under federal securities laws, pursuant to exemptions for charitable organizations.
21
Kiddie tax
Children with investment and other unearned income, such as dividends and capital gains, exceeding
$2,500 may be subject to the kiddie tax rules. These rules apply to children that are:
• Age 17 and under
• Age 18 with earned income not exceeding half of their support
• Over age 18 and under age 24 if also full-time students with earned income not exceeding half of
their support
Parents can elect to report this unearned income on their own return using IRS Form 8814 for
amounts less than $12,500. While doing so may be simpler, it may not necessarily be more tax-
ecient. For example, the kiddie tax applicable to a child’s unearned income of $10,000 may be less
than when claimed by a parent already subject to top tax rates.
Unearned income of children is taxed at the higher of the parents’ marginal tax rate or the child’s
tax rate.
Tax treatment
Less than $1,250 No tax
$1,250 – $2,500 Taxed at child’s rate
More than $2,500 Taxed at the higher of the parents’ top marginal rate or the child’s tax rate
22
Education planning
529 plans
• Earnings, if any, accumulate tax-deferred; qualied withdrawals (such as tuition, fees, supplies,
books, and required equipment) may be free of federal and state income taxes. See IRS publication
970 for more details.
• There are no federal income, state-residency, or age restrictions.
• Potential state-tax incentives are available in some states.
• Plans may be funded up to the annual exclusion amount, $17,000 (single) or $34,000 (married) per
year per donation recipient. Donors can also elect to make ve years’ worth of annual exclusion
amounts in a single year’s contribution, up to $85,000 (single) and $170,000 (married). For example,
a couple with twins could fund $170,000 for each child after birth and let those funds potentially
grow tax-free until needed. Contributions in excess of annual exclusions should be led on a gift tax
return (Form 709) to report use of the donor’s available lifetime exclusion or the election to superfund
ve years’ worth of annual contributions. Most plans allow for contributions by people other than
the original donors, such as aunts/uncles, grandparents, friends, etc. You should consult with your tax
advisor about ling a gift tax return to make this election.
• Aggregate contribution limits vary by state — roughly $200,000 to $500,000 per beneciary.
• Elementary and secondary school tuition expenses of up to $10,000 per year are qualied education
expenses for federal tax purposes. This exibility may allow earlier access for private tuition prior to
college. However, not all states conform to this denition of qualied expenses, so check with your
tax advisor and conrm your state rules before taking a distribution for this purpose.
While the benets under 529 plans for early education may sound exciting, taxpayers may nd
it more advantageous to leave the 529 plan account untouched. This may allow the 529 the
potential to grow tax-free during the primary education years and instead use it for college and
post-graduate studies.
• Qualied education loan payments are distributions that may be used to pay the principal and/or
interest on qualied education loans and are limited to a lifetime maximum amount of $10,000
per person. Not all states have conformed to this law, and therefore a distribution may be considered
a nonqualied withdrawal in your state. Nonqualied withdrawals are subject to federal and state
income tax and a 10% penalty.
Please consider the investment objectives, risks, charges, and expenses carefully before investing in a
529 savings plan. The official statement, which contains this and other information, can be obtained
by calling your advisor. Read it carefully before you invest. The availability of such tax or other benefits
may be conditioned on meeting certain requirements.
23
Considerations for excess 529 funds
• If a plan is overfunded due to your child (or whoever the plan was set up for) not having enough (or any) qualifying
education expenses, you can change the plan beneciary so long as the new beneciary is a family member of
the previous beneciary (a sibling, spouse, parent, rst cousin, etc.) and it is not a custodial 529 plan.
– The donor can still access those tax-deferred funds; however, income taxes and penalties on distributions not
used for qualied education expenses will apply on the growth of the assets.
– While changing a 529 plan beneciary is generally not a taxable event, changing to a new beneciary in a
younger generation may have gift tax consequences if not done appropriately.
• Achieving a Better Life Experience (ABLE) accounts allow for tax-advantaged funds to help disabled individuals
pay for qualied disability-related expenses.
– Rollovers from 529 plans to ABLE accounts (529A plans) are permissible, subject to federal and state
limitations. Be aware that rollover rules may vary by state.
• Beginning in 2024, 529 designated beneciaries can make a rollover contribution from their 529 to their
Roth IRA if certain conditions are met (state laws may vary):
– 529 must have been maintained for 15 years
– May not exceed the aggregate of contributions and earnings in the account more than ve years before
the rollover
– May not exceed $35,000 lifetime limit
– Are subject to annual Roth IRA contribution limits
– The Roth IRA owner must have earned income at least equal to the amount of the rollover
Coverdell Education Savings Accounts (ESAs)
• Annual, non-deductible contributions are limited to a total of $2,000 per child from all contributors, regardless
of the number of ESAs for that beneciary.
• Contributions may be made until the child, sometimes referred to as the designated beneciary, reaches age 18.
• Special needs beneciaries are allowed contributions beyond 18.
• Maximum contribution amount is reduced if a contributor’s MAGI is between $95,000 and $110,000 for
individual lers or $190,000 and $220,000 for joint lers.
• Contributions can be made to both an ESA and a state sponsored 529 plan for the same year for the same
beneciary.
• Qualied distributions are generally federally tax-free, if they aren't more than the beneciary's adjusted qualied
education expenses for the year. Qualied Coverdell Education Savings Account distributions are not subject to
state and local taxation in most states.
• Funds must be used before age 30 or transferred to a family member under the age of 30 (except for special needs
beneciaries).
• A prior advantage of ESAs over 529s was the ability to use an ESA for private elementary or secondary school
tuition. This advantage has been minimized now that 529 plans oer similar distributions and permit higher
funding contributions, which are not phased out by the donor’s income level.
24
American Opportunity Credit
Maximum credit: $2,500 per student per year, for rst four years of qualied expenses paid
Married ling jointly $160,000 – $180,000
Single ler $80,000 – $90,000
Up to 40% ($1,000) of the American Opportunity Credit is refundable. This means that even if your
tax bill is zero, you can receive a refund of up to $1,000.
Lifetime Learning Credit
Maximum credit: 20% of the rst $10,000 (per tax return) of qualied expenses paid in the current
tax year
Married ling jointly $160,000 – $180,000
Single ler $80,000 – $90,000
Exclusion of U.S. savings bond interest
Married ling jointly $137,800 – $167,800
Others $91,850 – $106,850
Bonds must be titled in name(s) of taxpayer(s) only. Owner must be age 24 or older at time of issue. Must be Series EE or I bonds issued after 1989. Proceeds must
be used for qualied post-secondary education expenses of the taxpayer, spouse, or dependent.
Student loan interest deduction
Maximum deduction: $2,500
Married ling jointly $155,000 – $185,000
Others $75,000 – $90,000
25
Real estate investors
As a real estate investor, you have access to a number of expense deductions that can be used to
reduce taxable income. For example, you may expense 80% of new and used qualied tangible
business property acquired and placed in service during 2023 under the Bonus Depreciation
provisions. In addition, the Section 179 election allows for the expensing of $1,160,000 relating
to the cost of certain depreciable tangible personal property used in a rental business, as well as
certain nonresidential real property improvements. The maximum amount that may be spent on
such property before the Section 179 deduction begins to phase out is $2.89 million.
Real estate investors may utilize Section 1031 exchanges to defer any gain realized on the sale of
real estate used in a trade or business by purchasing replacement like-kind real estate. Section 1031
cannot be used for personal property or real property held primarily for sale.
There are special risks associated with an investment in real estate, including the possible illiquidity
of the underlying properties, credit risk, interest rate fluctuations and the impact of varied
economic conditions.
26
Useful real estate tax treatment information
Generally, income from real estate activities is considered a passive activity. As such, if a property
operates at a loss, the loss is only deductible against other passive income or may be used if you
dispose of your entire interest in the activity during the year. Only real estate professionals who
provide greater than 750 hours of personal services in real property trades and spend more than
half of their time in real estate trade or business can fully deduct losses from real property activities,
including the use of those losses against other sources of taxable income. As the rules often are
based on specic facts and circumstances, you should consult your tax advisor to conrm the proper
deductibility of these activities.
Maximize real estate deductions
Taxpayers should consider whether certain real estate properties should be used as business or personal
assets. If the taxpayer uses the property in a real estate trade or business (for example, renting the
property), the operating expenses, real estate tax, and mortgage interest are fully deductible.
If the property is for strictly personal use, the deduction for real estate taxes is currently limited
to $10,000. This $10,000 limitation also includes amounts paid for state and local income taxes.
The mortgage interest deduction is limited to interest paid on the rst $750,000 of mortgage
indebtedness secured by a primary or secondary residence. However, for mortgages originating before
December 16, 2017, a deduction is available for interest paid on the rst $1 million of mortgage
indebtedness. Interest on home equity loans and home equity lines of credit that are not used to either
buy, build, or substantially improve a primary or secondary residence is not deductible. The debt must
also be secured by the home.
If property is being used for both personal and business, consult your tax advisor to see how the rules
may apply to you.
Owners of real estate entities established as pass-through businesses, such as sole
proprietorships, LLCs taxed as partnerships, partnerships, or S corporations, may be
able to take advantage of the 20% qualified business income deduction against the
owner’s share of taxable rental income, subject to certain limitations. Regulations
indicate that real estate operated in a trade or business could qualify for the deduction.
27
Alternative minimum tax (AMT)
The alternative minimum tax (AMT) calculates income tax under dierent rules for income and
deductions. If the AMT calculation results in a higher tax, the taxpayer will be subject to AMT and pay
the higher tax. Generally, a taxpayer with a high proportion of capital gains income in relation to total
income may trigger the AMT, as might exercising incentive stock options.
Tax
Up to $220,700
16
26%
Over $220,700
16
28%
16. $110,350 if married ling separately
AMT exemption
Married taxpayer ling jointly/surviving spouse $126,500 $1,156,300
Unmarried individual $81,300 $578,150
Married taxpayer ling separately $63,250 $578,150
Estates and trusts $28,400 $94,600
Long-term care deduction
for policy premiums
For specic qualied long-term care policies, the premiums are considered to be a personal medical
expense and deductible by the IRS. The amount of qualied long-term premiums that will be
considered a medical expense are shown in the table below.
17
The medical expense deduction is
limited to qualied medical expenses over 7.5% of adjusted gross income.
40 or under $480
Over 40 but not over 50 $890
Over 50 but not over 60 $1,790
Over 60 but not over 70 $4,770
Over 70 $5,960
17. Limitations apply based on the type of taxpayer. You should consult your tax advisor regarding your situation.
28
Health savings account
(HSA) limits
Health Savings Accounts (HSAs) are available to participants enrolled in a high-deductible health
insurance plan. At the federal level, contributions to HSAs are not subject to income tax. Distributions
are tax-free as long as they are used for qualied medical expenses.
In most states, contributions to HSAs are not subject to state taxes and income earned in HSAs is
tax-deferred. Similar to federal law, qualied distributions are tax-free in most states. Please consult
with your tax advisor for state-specic guidance on the tax deductibility of contributions and state
taxes due on earnings.
If a distribution occurs from an HSA prior to age 65 for reasons other than qualied medical expenses,
ordinary income taxes along with a 20% penalty are due on the distribution amount. Distributions
from HSAs after age 65 are not subject to the 20% penalty but are subject to ordinary income taxes.
Contributions to HSAs can no longer be made after enrolling in Medicare (eligibility for Medicare
begins at age 65).
Single $3,850
Family $7,750
$1,000 catch-up contribution allowed per individual age 55 or older.
Single $1,500
Family $3,000
Single $7,500
Family $15,000
29
Connect regularly
with your advisors
While the strategies in this guide may be eective in helping manage your tax burden, they are not
all-inclusive or a destination in and of themselves. A better starting point is a strategic plan tailored
for your specic needs and goals. That’s where LifeSync® can help.
LifeSync is a planning experience that your advisor will guide you through to create a personal path
for every individual, helping you make more informed nancial decisions that more closely align
with your aspirations. Whether you're just starting out on your journey, comfortably on the way, or
ensuring things are in place for the next generation, your advisor can help guide you through LifeSync
to help ensure your values and nancial priorities stay in sync over time, help answer the questions
you need answered, and provide the clarity you need to help you make the right decisions — at the
right moments.
Connect with your advisor to get started. Finally, connect with your legal and tax advisors before
taking any action that may have tax or legal consequences to determine how the information in this
guide may apply to your specic situation.
30
WellsFargo & Company and its aliates do not provide tax or legal advice. This communication cannot be relied upon to avoid tax penalties. Please consult your tax
and legal advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specic
facts of your own situation at the time your tax return is led.
This guide has been created for informational purposes only and is subject to change. Information has been obtained from sources believed to be reliable, but its
accuracy and completeness are not guaranteed.
The implementation and maintenance of certain strategies and techniques in this brochure may require the advice of consultants or professional advisors other than
WellsFargo or its aliates.
WellsFargo Wealth & Investment Management (WIM) is a division within WellsFargo & Company. WIM provides nancial products and services through various bank
and brokerage aliates of WellsFargo & Company.
Brokerage services are oered through WellsFargo Advisors. WellsFargo Advisors is a trade name used by WellsFargo Clearing Services, LLC and WellsFargo
Advisors Financial Network, LLC, Members SIPC, separate registered broker-dealers and non-bank aliates of WellsFargo & Company.
Trust services available through banking and trust aliates in addition to non-aliated companies of Wells Fargo Advisors. Any estate plan should be reviewed by an
attorney who specializes in estate planning and is licensed to practice law in your state.
Insurance products are available through non-bank insurance agency aliates of Wells Fargo & Company and underwritten by non-aliated Insurance Companies.
Not available in all states.
WellsFargo Bank, N.A. oers various advisory and duciary products and services including discretionary portfolio management. WellsFargo
aliates, including nancial advisors of WellsFargo Advisors, a separate non-bank aliate, may be paid an ongoing or one-time referral fee in relation
to clients referred to the bank. The bank is responsible for the day-to-day management of the account and for providing investment advice, investment
management services and wealth management services to clients. The role of the nancial advisor with respect to the Bank products and services is limited
to referral and relationship management services.
© 2023 WellsFargo PM-05062025-6076835.1.1 IHA-7672705
