AMONG THE KEY TAX TOPICS: As the economy, tax laws and your life continually change, taking time to review your financial and tax situation could help you (and your family) keep more of what you’ve earned. While some strategies apply to the current year, others involve anticipating changes to come. For example, deep cuts in gift and estate tax exemptions, scheduled for the end of 2025, may be a good reason to start planning now if you haven’t already. “These are not decisions you want to make quickly,” says tax accountant Vinay Navani of WilkinGuttenplan.

Also, keep in mind that while inflation has slowed in the latter parts of 2023, the previous surge in prices prompted higher annual inflation adjustments by the IRS for income tax brackets, retirement savings and other provisions. Depending on your situation, this could enable you to put away more towards retirement or other needs, Navani notes. Ask your tax advisor how inflation adjustments have impacted your current tax picture, he suggests.

Below, Navani shares some insights on tax-efficient approaches to estate planning, investing for retirement, adjusting to market volatility and other issues. Ask your personal tax professional whether they might make sense for you. Be sure to visit our Market briefs page for the latest tax law changes that could impact your finances.

1. Review your gift and estate plans

If philanthropy is important to you, now could be a good time to consider giving more. If you regularly give to charities and itemize your deductions on your income tax returns, consider putting several years’ worth of gifts into a donor-advised fund (DAF) for a single year, Navani suggests. “That way, you may earn an immediate deduction and you can spread out the giving from the DAF over the next several years.” Of course, none of these decisions should be made based on taxes alone, Navani stresses. So be sure to consult your team before making any decisions.

Without Congressional action, the current high federal gift and estate tax exemptions will drop to the 2017 base level of $5 million for individuals and $10 million for couples (adjusted for inflation). This could expose millions of individuals who were previously exempt to gift and estate taxes starting with the 2026 tax year. If you’re one of them, you may want to consider moving assets out of your estate through gifts before the exemption changes, Navani suggests. A big part of the planning may involve the best ways to structure gifts. “You may not want to give substantial sums of money directly to a 16-year-old,” he says. “So you may want to speak with your advisor and tax specialist about what types of trusts could meet your needs. You’ll need to consider trust terms, naming a trustee, and other details. So it’s good to get those conversations going.”

2. Consider putting any losses to work for you

If you have experienced declines in some investments, a process known as tax-loss harvesting could enable you to sell underperforming assets that you were planning to sell anyway, invest the proceeds in assets you consider to be more promising, and use the losses to offset capital gains you may have realized elsewhere in your portfolio. And, if your losses for the year are greater than your gains, you can apply up to $3,000 of losses to offset your ordinary income, for federal income tax purposes. “If you expect the economy and markets to recover down the road, you could carry those losses forward and apply them in a year when your taxes may be higher,” Navani says. However, be sure not to repurchase substantially similar assets within 30 days before or after the sale to avoid triggering the wash sale rules, which would disallow the loss. If the losses include not just marketable securities but shares of a privately held company, you may need additional documentation, Navani says. “Due diligence takes time, so don’t wait until the end of the year to consult your tax advisor.”

Loss harvesting strategies aren’t right for every situation and should only be pursued with your long-term investment goals in mind. Selling assets solely for tax purposes could amount to “the tax tail wagging the investment dog,” Navani advises. And claiming losses comes with other considerations based on how long you’ve held the assets you sell, what you invest in as a replacement, and other factors. See this report for more details on tax loss harvesting.

3. Keep track of where you’ve worked remotely out-of-state (or country)

For millions of workers, remote work is now the norm. “It’s vital to consider the tax implications, especially if you’re living in a different state from where your employer is based,” Navani says. States have widely varying definitions of “residency” that may include (a) domicile in the state, which usually focuses on an intent to remain, (b) maintaining a non-temporary presence in the state or a presence for a specific period of time, or (c) maintaining a “permanent place of abode.” Generally speaking, once you reach 183 days (more than half the year) in the state where you’re working remotely, that state may consider you a resident and tax your total income. To help avoid potential penalties, track your days spent working in different locations carefully and speak with your tax advisor about the latest rules in the states where you’re living, where you’re working remotely, and where the business is located, Navani suggests.

With international travel restrictions eased, “We’re seeing more clients who say, ‘I’ll go live in France for six months or a year, for a once-in-a-lifetime experience,’” Navani says. If you’ve been working overseas, or plan to, it’s important to be mindful of the income tax implications, he says. Your federal tax picture may be more complex. For example, under the Foreign Earned Income Exclusion (FEIE), you may exclude up to a certain amount, which is adjusted annually for inflation.¹ “But the requirements are pretty strict,” he cautions. “Either your domicile has to change to that country, or you have to be there for at least 330 out of 365 days.” Certain other restrictions may also apply. Whatever your plans, be sure to speak with your tax advisor about the implications for your federal and state taxes and for the country where you’re living, Navani says.

4. Max out on your retirement plan

Think about increasing your contributions to your 401(k), IRA or other qualified retirement plan to reach the maximum contribution amount. Not only does this offer the possibility of increasing your retirement savings, but it will also potentially lower your taxable income. For 2024, the IRS raised the 401(k) contribution limit to $23,000 and the IRA contribution limit to $7000.² You can learn more information about contribution limits in our guide. If you’ll be age 50 or older at any time during the calendar year, you may be able to take advantage of “catch-up” contributions, Navani suggests. (Under the SECURE ACT 2.0, savers age 60 to 63 will be able to contribute even more to 401(k)s – $10,000 or 150% of the standard catch-up amount, whichever is greater). If permitted under the terms of the retirement plan, you generally have until the end of the calendar year to contribute to a 401(k) plan and until April 15 of the following year to contribute to an IRA for the previous calendar year.

5. Consider converting your traditional IRA to a Roth IRA

Under existing federal tax law, anyone can convert all or a portion of their assets in a traditional IRA to a Roth IRA. (The deadline for doing so is December 31.) Unlike with a traditional IRA, qualified distributions of converted amounts from a Roth IRA aren’t generally subject to federal income taxes, as long as:

• At least five years have passed since the first of the year of your first Roth IRA contribution or conversion.
• You are age 59½ or older.

However, you’re required to pay federal income taxes on the amount of your deductible contributions as well as any associated earnings when you convert from your traditional IRA to a Roth IRA. Also it is important to remember, IRA conversions will not trigger the 10% additional tax on early distributions at the time of the conversion, but the 10% additional tax may apply later on the converted amounts if the amounts converted are distributed from the Roth IRA before satisfying a special five year holding period starting in the year of the conversion.

“If the value of the investments in your traditional IRA is temporarily down, it may be a good time to consider converting,” Navani suggests. Consult with your tax advisor to see if this approach is appropriate for you.

6. Look for tax-aware investing strategies

Putting a portion of your income into investments not generally subject to federal income taxes, such as tax-free municipal bonds, may not affect your tax picture this year, but could potentially ease your tax burden when these investments start generating income.

Keep in mind that if your modified adjusted gross income is at least $200,000, you're subject to a 3.8% Net Investment Income Tax on either your net investment income or the amount your modified adjusted gross income exceeds the $200,000 statutory threshold amount, whichever is less.  Certain exclusions apply. (Consult your tax advisor.) The threshold is $250,000 for married couples filing jointly or for qualifying widows or widowers with a dependent child, and $125,000 for taxpayers who are married and filing separately.

7. Fund a 529 education savings plan

By putting money into a 529 education savings plan account, you may be able to give a gift to a beneficiary of any age without incurring federal gift tax. You may also be able to contribute up to five years’ worth of the annual gift tax exclusion amount per beneficiary in one year, subject to certain conditions. 529 accounts may be used to pay for qualified higher education expenses of the beneficiary – say, for instance, a child or grandchild – at an eligible educational institution. The funds in a 529 account can also be used to pay up to $10,000 of qualified primary or secondary school tuition expenses annually from all 529 accounts for a beneficiary.

Now may be a good time to review your 529 account investments, to be sure you’re still on track to meet your education goals, Navani suggests. “Especially if the money will be needed soon, you may want to adjust your contributions and investments accordingly.”

8. Cover healthcare costs efficiently

Both health savings accounts (HSAs) and health flexible spending accounts (health FSAs) could allow you to sock away tax deductible or pretax contributions to pay for certain medical expenses your insurance doesn’t cover.

But there are key differences to these accounts. Most notably, you must purchase a high-deductible health insurance plan and you cannot have disqualifying additional medical coverage, such as a general purpose health FSA, in order to take advantage of an HSA. Also, unless the FSA is a “limited purpose” FSA, you cannot contribute to both accounts.

One important benefit of HSAs is that you don't have to spend all of the money in your account each year, unlike a health FSA. Generally, the funds you contribute to a health FSA must be spent during the same plan year. However, some employers allow you to roll over as much as $610 for 2023 in health FSA funds from year to year, and others allow a grace period of up to 2½ months following the end of the year to use your unspent funds on qualified benefit expenses incurred during the grace period.

Also, you can deposit funds into an HSA up to the tax filing due date in the following year (up to the maximum dollar limit) and still receive a tax deduction. For example, you can make your 2023 contribution by April 15, 2024. Meanwhile, health FSA contributions are generally only elected during open enrollment or when you become an employee of a company.

Be sure to check your employer's rules for health FSA accounts. If you have a balance, now may be a good time to estimate and plan your health care spending for the remainder of this year. In addition, see if the account balance can be used to reimburse you for qualified medical costs you paid out-of-pocket earlier in the year. For more on HSA contribution and plan limits, see our contribution limits guide.)

9. Move towards clean energy

The federal Inflation Reduction Act, signed into law in August 2022, includes nearly $400 billion for clean energy tax credits and other provisions aimed at combating climate change. “Tax increases included in the bill focus mainly on large corporations rather than individual taxpayers,” Navani notes. For individuals, the main consideration may be thousands of dollars in potential tax credits for buying new or used electric or hybrid clean vehicles, installing residential energy property, and other steps. Restrictions apply, so check with your tax advisor on which credits might be available to you, Navani suggests.