Benjamin Franklin is famously quoted as saying, “In this world, nothing is certain but death and taxes.”
Planning for the inevitable certainty of death is an uncomfortable task for many, so we strive to help you connect your choices about the future with your values and the legacy you wish to leave. When it comes to the inevitability of taxes, we want our clients to see beyond the arduous task to the possibilities and opportunities that exist. We do this by being proactive with tax planning and, oftentimes, in consultation with our client’s tax professional.
To give you a sense of the knowledge and wisdom of tax professionals, and to help you prepare for the task ahead, we are partnering this month with our friend and neighbor, Terry Aaseby, CPA. Terry manages an accounting firm in Mint Hill, NC. He let us pick his brain so that you can approach this tax season and all future tax seasons with more answers and fewer worries.
Q&A with Terry Aaseby, CPA
Q: What are a few things that you wish everyone knew about tax season?
A: This first one may surprise some folks, but filing your taxes early is not always best. In order to file your taxes, you will need to receive all sorts of statements from different financial entities (e.g., 1099 and W-2 forms). Give these documents time to arrive. You don’t need to rush and file your taxes just to turn around and amend your return because of missed documents or essential information arriving late. Do not fall victim to a false sense of urgency. The filing deadline is still the deadline, whether you file on April 14 or January 14.
Second, you don’t need to cover your ears or speak in hushed tones when mentioning the dreaded “IRS.” The very acronym seems to spark fear, disillusionment, and frustration in the hearts of many, but on closer inspection you might feel otherwise. In reality, the IRS website, irs.gov, can be a good source of information prior to filing. If you have not taken the time to look around the website, I would recommend doing so. Two publications you might find useful are Pub5348 and Pub5349.
Also, take a moment and register yourself. Having a login on the IRS website will grant you access to prior year tax return transcripts, as well as prior and current year wages, and income records. This is a great way to compare what the IRS has vs. what you have received for your tax return filings. You can also verify tax estimate payments and any prior year balances owed.
Q: Are there any new developments that clients should be aware of for this tax season?
A: One of the biggest 2023 changes come with the adjustments made in response to rising inflation rates. For example, the lower and upper thresholds at each level of the federal income tax bracket have increased by just over 7%, which is more than we’ve seen in recent years. This allows a person to earn more income before hitting the next tier of tax rates, which means more dollars stay in your pocket.
Long-term capital gains rate thresholds have increased as well. For a tax payer filing individually, the long-term capital gains rate now increases from 15% to 20% above $492,300, instead of above $459,750 (as it did in 2022). For tax payers filing jointly, the long-term capital gains rate now increases above $553,850 instead of $517,200. Both positive adjustments for your bottom line!
Regarding retirement contributions, annual limits have gone up. An individual can now contribute up to $22,500 (up from $20,500 in 2022) to 401(k), 403(b), 457 and TSP accounts. Individuals age 50 or older can also contribute an extra $7,500 (up from $6,500) as a catch-up contribution. For Traditional and Roth IRAs, the contribution limit has increased to $6,500 (up from $6,000), along with an extra $1,000 catch-up contribution for those 50 or older. It’s important to note that these changes can be very beneficial, but only if savers proactively increase their savings rate at the beginning of the year, particularly for employer retirement plans.
Another change related to retirement planning is a new tax credit of up to $5,000 for three years to eligible employers to cover the ordinary and necessary costs associated with starting a SEP IRA, SIMPLE IRA, or 401(k) plan for your business. This credit can be claimed in each of the first three years of the plan, and is particularly significant, as it reduces the amount of tax you owe on a dollar-for-dollar basis. There are some qualifications that must be met, but this is definitely worth looking into if you are planning to set up a plan for your group.
The last item I’ll mention is the pass through entity (PTE) tax payment, which applies to individuals holding a partnership or S corporation in one of 28 different states (see below* for complete list). Effectively, many tax payers lose out on their ability to deduct their state income tax payment against their individual federal return for multiple reasons. However, the PTE tax payment provision may allow you to shift the payment of state income taxes to your partnership or S corporation where it can be fully deducted, then passed through to the owner’s individual return. The net effect is gaining the full benefit of those taxes against your federal taxable income.
Please note: Terry expressed that every person’s tax situation is different, and that the reader should consult with their own tax professional for additional guidance on these items as they relate to individual circumstances.
Q: What can/should clients do all year long to make future tax seasons easier?
A: My biggest suggestion is to have 2-3 touch points with your tax professional throughout the year. Spread them out to give enough time for tax developments to be processed and your professional to gather information regarding the given developments. Do your best to write tax-impacted events down on paper and discuss with your tax professional on how best to navigate those in your given situation. Examples include things like having a child, getting married or divorced, receiving an inheritance, gifting large sums of money to a charity or individual, etc. Don’t be afraid to ask questions, even if they seem silly to you.
Taxes the Mint Hill Way
At Mint Hill, we rely heavily on the expertise of certified accounting professionals like Terry. It is from them that we’ve learned to take a proactive approach to tax mitigation in our day-to-day planning.
Just recently, we’ve implemented our Apex program which helps our clients increase tax savings by enhancing the efficiency of tax loss harvesting. We have also identified opportunities for accredited investors to defer capital gains taxes through investment in opportunity zones.
These services make a difference to our clients’ bottom line and wouldn’t be possible without the guidance and feedback from our trusted tax professionals. So, Terry, we thank you for your feedback in this article, and for the role you and others play in the year-to-year planning that directly impacts our clients’ long-term aspirations and goals.
Now, as we move into this next tax season, it’s that time – gather your paperwork, fill out your forms, and pay your taxes. But do so with the knowledge that this process is more than just an inconvenient certainty – it is a small but important stroke in the creation of your life’s masterpiece.
We leave you with the following quote from Vincent van Gogh, whose painting, “The Starry Night,” is one of the most well-known from modern times:
“For my part I know nothing with any certainty, but the sight of the stars makes me dream.”
Now, turn your eyes to the skies and dream.
About Melissa
Melissa Smigelsky, PhD, is a clinical psychologist by day and a freelance writer for Mint Hill Wealth Management by night. As someone who sacrificed earnings in her 20s and 30s to pursue a doctorate, Melissa has a deep appreciation for the unique services and perspective offered by Mint Hill. She also knows from personal and professional experience that money is one of the most important (and often neglected) topics in relationships. Melissa is excited to use writing to foster personal reflection and purposeful communication that can contribute to intentional living for all Mint Hill clients.
*States and local jurisdictions that have taken some form of action: Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Georgia, Idaho, Illinois, Kansas, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Oregon, Rhode Island, South Carolina, Utah, Virginia, Wisconsin, and New York City (proposed in Iowa, Missouri, Ohio, and Pennsylvania).
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