As the Thanksgiving holiday approaches, we want to provide our clients with a financial year-end check list.  We encourage you to review the topics we have selected, knowing that they are important not only for 2022 year end planning but also for 2023 consideration. If you have any questions, please give us a call to discuss them.

1. Gift Tax Annual Exclusion. For 2022, the annual Federal gift tax exclusion has increased to $16,000. The annual exclusion is the most you can give away to or for the benefit of a single person within a calendar year without needing to file a Federal gift tax return (Form 709) and/or reducing your lifetime exemption. If you are married, you can “split” gifts with your spouse, essentially doubling your annual exclusion. As an example, if you are married and your spouse consents, you can gift up to $32,000 to unlimited individuals in 2022 with no gift or estate tax consequences. The IRS treats the $32,000 gift as two gifts below the annual exclusion, one from you and one from your spouse.

Additionally, gifts to pay certain education and medical expenses are exempt, even if they are in excess of the annual exclusion, as long as the gifts are paid directly to the educational institution or medical provider and not paid to the recipient of the education or medical treatment.

Note that the annual Federal gift tax exclusion for 2023 is $17,000.

Gift/Estate Tax Lifetime Exemption.

There is a common misconception that you must pay gift taxes if you give away more than the annual exclusion to a single recipient. Every taxpayer has a lifetime gift and estate tax exemption amount. In 2022, the lifetime exemption increased from $11.7 million to $12.06 million. Unless the tax laws change, the lifetime exemption will drop to approximately $6.2 million at the end of 2025. If you are interested in making a life time gift, we will be glad to work with you on that matter.

2. Retirement Account Contributions.  We suggest you maximize your retirement account contributions.   For 2022, the maximum IRA or Roth IRA contribution is $6000 up to age 49 and $7000 for age 50+.  For 401k plans, you can contribute as much as $19,500 up to age 49 and $26,000 for age 50+.

You can contribute to a traditional or Roth IRA even if you participate in another retirement plan through your employer or business. However, you may not be able to deduct all of your traditional IRA contributions if you or your spouse participate in another retirement plan at work.  Also, Roth IRA contributions will be limited if your income exceeds a certain level.

We suggest that if you cannot make the maximum contribution to your 401k, try to contribute funds that will at least match the maximum that your employer will contribute.

For 2022, there is no age limit on making contributions to a traditional or Roth IRAs as long as you meet the requirements for contributing.   For more information, visit the IRS web-page on Retirement Topics-IRA Contribution Limits.

3.Converting Traditional IRAs to a Roth.  If your income is down for 2022 or if you have considerable tax losses, consider converting some or all of your IRA to a Roth IRA.  For more information on Roth IRAs, read our blog from September 2020 on this topic.

4. FSA Year-end Spending.  If you have an FSA (“flexible spending account” for out-of-pocket medical expenses with tax-free dollars), you will pay taxes on any funds still in the account on December 31. There are three options for employers to provide relief to FSA participants who would otherwise have to forfeit leftover funds.  Check with your employer regarding its current policy regarding FSA funds which have not been spent by year-end. The best option is to make sure all your FSA funds are spent by December 31.

5. Charitable Giving.  There are many ways to make gifts to charity.  The easiest is a cash donation, while some clients prefer to contribute appreciated stock directly to a charity or to their donor advised fund.  In order for your donation to be tax-deductible, it must be made to a 501(c)(3) designated charity or a donor advised fund, and you must file an itemized tax return. Note that in 2021, tax payers who did not file an itemized tax return could deduct $300 for qualified charitable gifts but that deduction is not available in 2022.  Gifts must be received by the charity or donor advised fund no later than December 31. Note that QCD charitable gifts described below cannot be made to a donor advised fund.

6. RMDs and QCDs. The age requirement for a required minimum distribution (RMD) in 2022 is 72 years. Additionally, if you are over the age of 70½ in 2022, you can make a qualified charitable distribution (QCD) from your IRA (other than an ongoing SEP or SIMPLE IRA) which must be paid directly from the IRA to the qualified charity (but not to a donor advised fund).

  • Amounts distributed as a QCD can be counted toward satisfying your RMD for the year, up to $100,000.
  • The QCD is excluded from your taxable income. However, if you want to offset taxable RMD income with your QCDs, the QCDs must be made before you take your remaining RMD.
  • The $100,000 per person limit applies to the sum of all QCDs taken from all IRAs in a year. A donor can make one large contribution or several smaller contributions over the course of the calendar year. Remember that QCDs can be made from any or more than one of the IRA types (traditional, inherited, inactive SEP and inactive SIMPLE IRAs). For a QCD to count toward your minimum annual IRA distribution, it must be made by the same deadline as a normal RMD distribution, December 31, 2022.

If you have any questions about your RMD or QCD, please give us a call and we will be happy to discuss those questions with you.  We suggest that all RMDs and QCDs requests be made by December 10, 2022 to avoid any end-of-year delays.