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5 tax moves to consider before year-end

Key takeaways

  • December 31 is an important deadline for RMDs and contributions to many tax-advantaged accounts.
  • You might consider itemizing this year if you’ve purchased a house or had large out-of-pocket medical expenses.
  • Tax-loss harvesting can help offset market gains with losses up to $3,000 annually; unused losses can carry forward into future years.

As the end of 2023 quickly approaches, it’s time to consider tax tactics that could help you reduce your tax bill come April next year. While the official tax-filing deadline is months away, some important moves you can make now can prove essential to saving you money.

Here are 5 things to consider.

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1. Remember December 31

April may be the tax deadline everyone knows best, but December 31 is another important cutoff for contributions to some workplace retirement plans, college savings accounts, and more. So mark your calendar.

  • Tax-advantaged accounts. While you have until the tax-filing deadline of April 15, 2024, to contribute to an IRA for the current year, you must make your final contributions to most workplace retirement plans, such as a 401(k) or 403(b), by December 31, 2023. You can contribute up to $22,500 in total combined traditional and Roth contributions. If you're 50 or over, you can make additional catch-up contributions of $7,500. If you choose to make traditional contributions, that money will reduce your taxable income dollar for dollar.
  • 529s. You may be able to receive a state tax deduction for contributions to a 529 college saving account, made by December 31. Such plans are typically state-sponsored and may allow for state income tax deductions. The federal gift tax may apply for amounts exceeding $17,000 per person and per beneficiary. You can also front-load 5 years' worth of annual gifts of up to $17,000, for a total of up to $85,000 per person, per beneficiary in 2023 without having to pay a gift tax or interfering with the lifetime gift tax exclusion.1 (These amounts increase to $18,000 and $90,000 respectively for 2024.) However, after that, you won’t be able to make gifts under the annual exclusion to the same beneficiary for the following 5 years. You can also contribute to a custodial account, known as an UGMA or UTMA. While such accounts are the property of the beneficiary once you set one up, the assets are considered part of the donor’s estate until the beneficiary is no longer a minor and takes control of them.
  • Required minimum distributions. If you're 73 or older, you have until December 31 to take your required minimum distribution, or RMD, from traditional IRAs, 401(k)s, and other qualified retirement plans.2 This is an important deadline: Missing it can result in a penalty of 25% of the required RMD. (Note: The penalty for not fulfilling RMD requirements can be as low as 10% if the RMD is corrected within 2 years.) Your first RMD is due by April 1 of the year following the year you turn 73.3 If this is your first year, think carefully about waiting until the April 1 deadline of the following year. You may be taking 2 RMDs in a single tax year, which can increase your taxable income. Remember, withdrawals are taxable, but there are ways to help reduce taxes with careful planning.

2. Consider itemizing

Fewer than 10% of tax filers itemize,4 but maybe you bought a house, plan a large charitable donation, or had large out-of-pocket medical expenses this year.

You may want to itemize if you think your deductions will add up to more than the standard deduction, which is $13,850 for single filers and $27,700 for married couples for tax year 2023. (Note: For tax year 2024 the standard deduction will increase to $14,600 for single filers and $29,200 for married couples.) There are 5 primary categories of itemizable deductions. These include medical expenses, home mortgage interest, state and local taxes, charitable contributions, and theft and casualty losses due to a federally declared disaster, and they are subject to various limitations. If you want to itemize your medical expenses, for example, they must be 7.5% or more of your modified adjusted gross income.

3. Make the most of losses

For nonretirement accounts, you might also want to consider year-round tax-loss harvesting where you use realized losses to offset gains first, and then can apply the remaining losses to offset up to $3,000 of ordinary income (depending on filing status) per year. Unused losses can be carried forward indefinitely. If you've got investments that are below their cost basis, and there's another investment (but not a substantially identical security), you could use it to replace the sold asset without a material impact to your investment plan. Consult a tax professional about your situation and beware of the wash-sale rule.

One exception is cryptocurrency—wash-sale rules currently do not apply to cryptocurrencies, as they are not regulated as securities. That means you can sell coins whose value has declined, and buy them back immediately at the same price, potentially realizing the loss while still holding the asset. Pending legislation about cryptocurrency regulations may eliminate this loophole, so be sure to work with a tax professional to stay on top of changes.

4. Roth conversions

With stock market volatility still in the picture and tax rates set to increase in 2026 due to the expiration of the Tax Cuts and Jobs Act of 2017, now may be the time to start thinking about a Roth conversion, which involves transferring money in a traditional IRA into a Roth IRA. (Lower stock prices may mean a smaller tax hit on converted money.) You pay taxes on the converted amount, and if you meet the associated 5-year-rule requirement, any appreciation can be withdrawn tax-free. Additionally, it isn’t subject to a required minimum distribution for the life of the owner.5

If you’re a high earner, you might also want to consider a backdoor Roth IRA. It's a "backdoor" way of moving money into a Roth IRA, accomplished by making nondeductible contributions—or contributions on which you do not take a tax deduction—to a traditional IRA and then converting those funds into a Roth IRA. (It's different from a typical Roth conversion, which is the transfer of tax-deductible contributions in a traditional IRA to a Roth IRA.)

Estimate the potential effect of retirement income strategies on your taxes with Fidelity's Retirement Strategies Tax Estimator.

5. Gifting and charitable giving

The gift tax exclusion for 2023 increased to $17,000 from $16,000 in 2022. That means you can give up to $17,000 to as many people as you like each year. (This amount increases to $18,000 in 2024.) If you and your spouse elect to split gifts for the year, each person in the couple can gift this amount—including to the same person—without the gift being considered taxable. The gifts can also help reduce the value of your estate, without using up your lifetime gift and estate tax exemption.

If you, your spouse, or family don’t need the money, donating to a qualified charity can help you with your tax planning in the year you’re donating, while also potentially lowering the value of your estate. For example, if you itemize your deductions you can contribute to a donor-advised fund (DAF) and become eligible for an immediate income tax deduction. (When you die, federal law allows for unlimited deductions of contributions to qualified charities from your estate.) You can also donate highly appreciated assets, such as stocks, bonds, and mutual fund shares held longer than a year and deduct their fair market value in order to potentially reduce or eliminate capital gains tax. Deducting charitable contributions may be subject to adjusted gross income (AGI) limits depending on the receiving charity and what you donated. Also be sure to check out any workplace giving benefits your company may offer that could help make this process easier to navigate.

Everyone’s tax situation is unique, and it might make sense to consult with a tax expert or advisor to come up with a financial plan that works for you. While December 31 is right around the corner, with some advance planning you’ll be ready to meet this and other important tax deadlines before the new year begins.

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1. An accelerated transfer to a 529 plan (for a given beneficiary) of $85,000 (or $170,000 combined for spouses who gift split) will not result in federal transfer tax or use of any portion of the applicable federal transfer tax exemption and/or credit amounts if no further annual exclusion gifts and/or generation-skipping transfers to the same beneficiary are made over the five-year period and if the transfer is reported as a series of five equal annual transfers on Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. If the donor dies within the five-year period, a portion of the transferred amount will be included in the donor's estate for estate tax purposes. 2. Required minimum distribution rules do not apply to participants in 401(k) plans who are less than 5% owners of employers that sponsor a workplace plan, until they retire or turn 73, whichever is later. 3. The change in the RMDs age requirement from 72 to 73 applies only to individuals who turn 72 on or after January 1, 2023. After you reach age 73, the IRS generally requires you to withdraw an RMD annually from your tax-advantaged retirement accounts (excluding Roth IRAs, and Roth accounts in employer retirement plan accounts starting in 2024). Please speak with your tax advisor regarding the impact of this change on future RMDs. 4. Source: Internal Revenue Service, Statistics of Income Bulletin, Summer 2023. 5. A qualified distribution from a Roth IRA is tax-free and penalty-free. To be considered a qualified distribution, the 5-year aging requirement has to be satisfied and you must be age 59½ or older or meet one of several exemptions (disability, qualified first-time home purchase, or death among them).

Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.

The views expressed are as of the date indicated and may change based on market or other conditions. Unless otherwise noted, the opinions provided are those of the speaker or author, as applicable, and not necessarily those of Fidelity Investments. The experts are not employed by Fidelity but may receive compensation from Fidelity for their services. Fidelity Investments is not affiliated with any other company noted herein and doesn’t endorse or promote any of their products or services. Please determine, based on your investment objectives, risk tolerance, and financial situation, which product or service is right for you.

This information is intended to be educational and is not tailored to the investment needs of any specific investor.

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