Holding Court: Tax Tips

Holding Court is a series by retired Rye City Court Judge Joe Latwin. Latwin retired from the court in December 2022 after thirteen years of service to the City.

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By Joe Latwin

It’s that time of the year for year-end tax planning. Here are a few tips to keep more of your money, or at least put it to good causes (like me).

First, you can take advantage of the annual gift tax exclusion. Each person can give another up to $18,000 without decreasing their lifetime $13,610,00 estate and gift tax credit. Spouses can make joint gifts up to $36,000. I am an available donee that will be most grateful for your gift. A gift may shift the income to a person with a lower tax rate (such as a child).

You may consider bunching of income or deductions into 2024 or 2025 so as to minimize the total tax paid. The current standard deduction for 2024 is $29,200 for couples. If you have more than that in deductions this year, you should consider incurring future deductions in 2024, so that you can use the standard deduction (which goes up to $30,000 for 2025) next year. This is an especially useful technique if you expect large medical costs. Likewise, you may consider grouping charitable deductions into 2024 or 2025.

If you have gains in your investments, you might consider selling investments with losses so as to offset the gains. Losses above net of gains can be carried over to later tax years up to $3,000.

If you will be 73 in 2025, you will be required to take minimum required distributions (“RMD”) from you IRA and 401k accounts. To determine your RMD, you take the account balance as of December 31 and divide it by the amount set forth in the IRS tables. For example, if you will be 73 and have $500,000 in your IRA, you will divide that by 26.5 and have to take $18,867.92 as an RMD that will be counted as ordinary income. Since you usually have not had any taxes withheld from your RMD, you will have to pay the taxes on that additional income plus any penalties and interest for not withholding (or paying estimated tax) during the year.  But here is a great tip. Usually, the account administrator will withhold 10% at the end of the year. You can have the administrator withhold more for taxes at the end of the year so as to cover whatever taxes might be due. That year-end withholding is treated as if it was evenly paid throughout the year, obviating underpayments in quarterly estimated tax filings. As an additional benefit, the funds kept in the account until the end of the year will continue to grow for you rather than for the IRS.

If you have an IRA or 401k, you can make contributions up to December 31, that will reduce your 2024 income by the amount of the contribution. The contribution limits are $23,000 in a 401k, $30,500 if you are 50 or older, and $7,000 for IRAs plus $1,000 if you are over 50.

Year end is also a good time to review your withholding and file a new W-4 to have more or less taxes withheld. You should also review who the beneficiaries of you payable on death accounts are. (Feel free to substitute me for a spouse or child).