Tax Planning Considerations - westwoodgroup.com

Tax planners often develop checklists to guide taxpayers toward year-end strategies that might help reduce taxes. Typically, suggestions are grouped into several different categories, such as “Filing Status” or “Employee Matters”, for ease of reading. When year-end approaches, it might be wise to review each suggestion under the categories that may apply to you.

Filing status and dependents

If you’re married (or will be married by the end of the year), you should compare the tax liability for yourself and your spouse based on all filing statuses that you might select. Compare the results when you file jointly and when you file married separately. Determine which option results in lower overall taxation.
If you and several other people financially support someone but none of you individually qualify to claim the individual as a dependent, you should consider making an agreement with all the other parties to ensure that at least one of you can claim the individual as a dependent. Certain tax benefits may be available if you can claim an individual as a dependent.

Family tax planning

Determine whether you can shift income to family members who are in lower tax brackets to minimize overall taxes.

However, under the kiddie tax rules, the unearned income of a child is taxed at the parents’ tax rates. The kiddie tax rules apply to: (1) those under age 18, (2) those age 18 whose earned income doesn’t exceed one-half of their support, and (3) those age 19 to 23 who are full-time students and whose earned income doesn’t exceed one-half of their support.

Consider making gifts of up to $17,000 (in 2023) per person federal gift tax free under the annual gift tax exclusion. Use assets that are likely to appreciate significantly for optimum income tax savings.
Take advantage of tax credits for higher education costs if you’re eligible to do so. These may include the American Opportunity (Hope) credit and the Lifetime Learning credit. Note that these credits are based on the tax year rather than the academic year. Therefore, you should try to merge your expenses to maximize the education credits.

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