COLLEGE PLANNING | ESTATE PLANNING | INSURANCE | INVESTING | PORTFOLIO SPOTLIGHT | REAL ESTATE | RETIREMENT | TAX PLANNING

Different times call for different year-end tax moves .

By Eric L . Reiner

Since indexing began nearly 40 years ago , “ The jump between the 2022 and 2023 federal tax brackets is the largest on record both in percentage terms and in nominal dollar terms ,” says Alex Muresianu , a policy analyst at the Tax Foundation , a Washington , D . C ., think tank . For instance , the top ordinary bracket for single filers now starts at $ 578,125 , a 7 % yearover-year surge of more than $ 38,000 .

What ’ s particularly impressive about the record leap is that these days , the federal brackets are adjusted using the Chained Consumer Price Index for All Urban Consumers ( C-CPI-U ), which typically produces smaller increases than the previously used CPI-U .

The upshot is that clients can report more income than last year while maintaining the same marginal tax rate , whether they ’ re eager to cash in Series I savings bonds or , as many advisors advocate , convert more pretax retirement money to a Roth account in hopes of avoiding potentially higher rates come 2026 , when the Tax Cuts And Jobs Act could sunset .

Consider today ’ s 22 % bracket for joint filers . Its ceiling is $ 12,600 higher than last year , having reached $ 190,750 .

Clients taking required minimum distributions from their retirement accounts may have the most opportunity to report more income . Because 2023 RMDs are based on account values at the end of 2022 , a year in which equities sank , “ Someone with a $ 30,000 RMD in 2022 likely has roughly a $ 25,000 RMD in 2023 . That suggests at least about $ 20,000 extra room in the 22 % bracket for a married couple 73-plus years old , if you include the increase in the standard deduction , too ,” says Jeremy Keil , a financial planner with Keil Financial Partners in New Berlin , Wis . Of course , retirees ’ higher Social Security income will eat up some of the bracket expansion .

Mutual fund distributions might , too . “ When markets are up significantly but volatile along the way , that can be a year when mutual funds make larger than normal capital gain distributions . Be on the lookout for those distributions and let clients , and their accountants , know what to expect ,” advises John Scherer , principal and founder of Trinity Financial Planning in Middleton , Wis .

Maxing out a tax rate is one thing . Triggering higher Medicare premiums is another . So advisors should keep an eye on the income brackets for Medicare ’ s income-related monthly adjustment amount , or IRMAA , when maneuvering income into 2023 . You don ’ t want to bump up the client ’ s cost for Medicare Parts B and D two years from now accidentally .

However , you may want to do it intentionally . “ Try to pack income in one year so that the client pays IRMAA for one year , not multiple years ,” says Glenn Schwier , a CPA and partner at Nisivoccia LLP in Mount Arlington , N . J .

48 | FINANCIAL ADVISOR MAGAZINE | NOVEMBER 2023 WWW . FA-MAG . COM