Year-End Tax Planning Tips for Delaware Retirees

Did you know your standard deduction increases when you turn 65? That’s not the only tax-related change based on age. Those 50 and older must pay close attention to ever-changing tax laws to ensure they aren’t forking over more than their fair share to the IRS each year. 

Understanding age-related tax rules is a great place to start when conducting year-end tax planning tasks. Understanding the rules around gifting, learning how to maximize tax deductions to shelter your savings, and knowing when to outsource to a professional can all make a big difference in preserving your wealth as a Delaware retiree.

Keep in mind the facts and figures outlined in this article pertain to 2022. A review of changes for 2023 will be highlighted on our blog in January.

Understanding Age-Related Tax Rules for Retirees

First, you must determine if you’ll itemize or take the standard deduction when preparing your taxes. Taking the standard deduction means you subtract a set amount of money from your adjusted gross income based on your income, age, and filing status. 

Those choosing to itemize lower their taxable income by subtracting qualifying expenses as outlined by the IRS. The choice is typically made by adding up your qualifying expenses and comparing them to the standard deduction you qualify for and selecting whichever is larger. 

Turning 65 increases your standard deduction. Here’s an overview of standard deductions for  2022 for those over and under the age of 65:

  • Filing Single and under 65: $12,950 standard deduction 

  • Filing Single and 65 or order: $12,950 + $1,750 = $14,700

  • Married, filing jointly, and under 65: $25,900 

  • Married, filing jointly, and one spouse is 65 or older: $25,900 + $1,400 = $27,300

  • Married, filing jointly, and both are 65 or older: $25,900 + $2,800 = $28,700

If you’re still contributing to a 401(k), 403(b), and most Thrift Savings Plans, your max contribution amount has increased in 2022 to $27,000 for those 50 and older. Those 50 and older are still able to make catch-up contributions to an IRA, making them eligible to contribute up to $7,000 per year (per spouse). 

I Want To Give Generously but Am Worried About Being Taxed

When it comes to gifting and taxes, we’re ultimately referring to the federal gift tax. Knowing the limits associated with the gift tax can help you give with confidence. In 2022, you can give up to $16,000 with little to no fear of tax ramifications. 

Keep in mind, gifts aren’t just cash or checks, $16,000 refers to the value of the gift. You can also give up to $16,000 to as many people as you’d like within a year and not have to report the gifts to the IRS. This law also has a lifetime-giving aspect that often absorbs gifts over $16,000.  The lifetime exclusion related to gifting in 2022 is $12.06 million. 

If you give a gift to one person that is more than $16,000, the excess begins to accumulate towards your lifetime non-taxed gifting exclusion. While large gifts will trigger a bit of extra paperwork come tax time, most don’t have to worry about paying taxes on gifts. Let’s review a common example of gifting over $16,000.

Example: If you’re in the market for a new vehicle, you may choose to give your current vehicle to a grandchild (instead of trading it in or selling). If the vehicle you’re gifting is worth $20,000, your gift will be $4,000 over the annual limit. In this case, you will have to report the gift at tax time. The good news is you still likely won’t incur any additional taxes; the excess $4,000 will go towards your lifetime exclusion up to $12.06 million.

It’s important to note that while the lifetime exclusion is $12.06 million today, it’s not expected to remain this high. The current lifetime limit is part of the Tax Cuts and Jobs Act, set to expire in 2025 at which time the lifetime exclusion will drop to a figure closer to $6 million in 2026.  Such changes primarily impact those transferring wealth to a future generation where adjusting the timeline of a gift can help preserve your wealth for future generations.  

How Can I Maximize My Tax Deductions?

Whether you’re retiring soon, already retired, or one spouse is retired — now is not the time to forget about your tax-advantaged accounts. 

If you’re still working, keep contributing to your 401(k), IRA, FSA, or HSA. You’ll not only appreciate the extra funds down the road, but you’ll realize an immediate tax benefit by lowering your taxable income with said contributions. Those itemizing may choose to make charitable donations to qualified organizations or contribute to a Donor Advised Fund to lower their gross income.

While lump sum contributions in any of these areas are completely acceptable, now may be a time to consider planning for next year. For example, if you have your eye on maxing out an IRA at $7,500 in 2023 (note the limit is increasing from $7,000 in 2022 to $7,500 in 2023), start planning to make monthly contributions into the account so you’re not scrambling at the end of the year. While it may all equal out, many prefer to spread out the cost instead of seeing a large debit in their savings at the end of the year. 

Get Your Taxes Done Right with the Help of a Local CPA

We’ve scratched the surface of how understanding tax law can have a positive impact on preserving your wealth. At Integrated Wealth Management, our wealth management clients gain peace of mind in knowing we’re looking out for them each tax season. It’s our job to stay on top of the changes and assure you’re taking advantage of every savings opportunity available to you before and after retirement. 

Every client's tax scenario differs. While we hope we’ve given you a few things to think about today, for personalized tax advice — reach out to one of our advisors today. Burt Hutchinson is a Certified Financial Planners (CFP®) and Certified Public Accountants (CPA). Our expertise lies in guiding clients through the 3 phases of retirement in a tax-efficient manner so you can enjoy retirement to the fullest.

About Integrated Wealth Management

Integrated Wealth Management is owned by Burt Hutchinson, CPA, CFP®. We’re a CPA-led organization, meaning we’re here to handle your complex tax scenarios and provide cost-saving insight related to your financial plan.  

We’re here to guide you through the 3 stages of retirement:

  1. Uncertainty Stage: When you are within 10 years of retirement and have questions about how to make it work

  2. Stability Stage: When you have reached the financial milestone to retire comfortably and confidently

  3. Reflection Stage: When you are looking to leave a legacy

We are also here to provide experienced, empathetic support during times of loss, such as the death of a life partner. You need confidence and a sense of security to enjoy retirement. As fiduciaries with a fee-only structure, we never receive commissions. Free of ulterior motives, you can be sure we’re focused on your goals.

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