Ep. 192 – 10 Tax Tips for The Beginning 2023

Do you want to keep your tax planning smooth as you set goals for this year? As you think about getting ready for the tax season and setting goals for 2023, we know you want to make your life a bit simpler.

In this episode of the Secure Your Retirement podcast, we share ten tax tips for the beginning of 2023 to simplify your life. We discuss things like tax-free sources of income, Roth conversions, tax withholding, Required Minimum Distributions, and much more.

In this episode, find out:

  • Take advantage of tax-free sources of income – consider where your income is coming from.
  • Consider converting a traditional IRA into a Roth IRA and whether or not it makes sense for you.
  • Review your tax withholding to avoid under-withholding or over-withholding.
  • Take advantage of deductions for medical expenses – keep track of your medical expenses throughout the year.
  • Take advantage of charitable contribution deductions – through QCDs or donor-advised funds.
  • Don’t forget about quarterly payments to the IRS to avoid penalties.
  • Don’t forget about state taxes when making quarterly payments to avoid penalties.
  • Consider part-time work to keep you busy or for medical insurance if you retire before 65.
  • Don’t forget about the Required Minimum Distributions (RMDs) if you’re turning 72 this year.
  • Keep track of your tax documents to prepare your CPA or yourself for tax returns.

Tweetable Quotes:

  • “If you can control your taxable income, it will give you great tax planning advantages throughout 2023.”– Radon Stancil
  • “There can be a penalty if you do not do enough withholding or you do not do quarterly payments throughout the year.”– Murs Tariq


If you are in or nearing retirement and you want to gain clarity on what questions you should be asking, learn what the biggest retirement myths are, and identify what you can do to achieve peace of mind for your retirement, get started today by requesting our complimentary video course, Four Steps to Secure Your Retirement!

To access the course, simply visit POMWealth.net/podcast.

Here’s the full transcript:

Radon Stancil:               Welcome everyone to our Secure Your Retirement podcast. We are venturing well now into our first week or so of 2023, and we are trying to make sure that we set ourselves up correctly to make sure that we’re thinking things through. So here in the first month or so of 2023, Murs and I are going to be talking about those things that you need to think about throughout the year. Start setting yourselves up now so that you have a great 2023 and we’ll just forget about 2022. It’s kind of like that COVID year of 2020, we just want to forget about 2022. It had market problems, inflation, all that good stuff.

                                    So here’s our topic for today, 10 tax planning tips for beginning 2023. So these are beginning of the year, let’s think it through, let’s think about some things that we might want to make notes on. I just want to tell you that we are going to go through 10 items, don’t stress though. We do have a blog written on this very topic as well. So you’ll be able to go there to our website, pomwealth.net, go to the blog page and you’ll be able to read about all these different tips.

                                    All right. So let’s talk about our tip number one, take advantage of tax-free sources of income. Now, you might think, why would I ever think about this and what would we even be talking about? Well, many folks that have planned for or living in retirement, they’re going to have different types of money. They’re going to have traditional IRA money. So if you take that out, that’s taxable. They’re going to have some money that you couldn’t do anything about. If you have a pension that’s going to be taxable. If you’ve got social security, some of that could be taxable. But there are other places that I can go and take money that I would not have to claim as income. What would that be? Well, that could be a Roth IRA distribution. I’m going to tell you that’s probably not the best place to be taking money at the beginning of your retirement. But another source could be, I’ve got some savings either in a brokerage account that’s a stock account, something like that or I’ve got savings in the bank.

                                    Now we might question, well, why would I want to do that? Well, there’s a couple of reasons, but I’m going to tell you the primary one that we would talk about is setting ourselves up for a Roth conversion. Now, that’s going to be one of our tips a little bit later, but the first tip is consider where our income’s coming from. So when we talk about this idea of tax-free income, the concept here is think about where am I going to take money from this year? What’s going to be the source of my income? The other thing here is if I plan this correctly, I might even be able to take my social security and not pay any taxes.

                                    The other part of this could be, is that maybe I’ve got some things that I want to take advantage of when it comes to maybe a highly appreciated stock and I want to take care of it that or I’ve got something else that’s going to be a capital gain. And so if I can control my taxable income, it just gives me great tax planning advantages throughout 2023. So I want narrow this one down into this before we go to our next tip. Basically, consider where my income is coming from and it might be advantageous to make sure that I take tax-free sources. So make that note, consider where my income’s going to come from for 2023.

Murs Tariq:                   All right. That leads really nicely into number two. Consider converting a traditional IRA to a Roth IRA. We talk about these all the time. The actual act of it is a Roth conversion. And it’s always good to consider, does it make sense to do it? And one of the big things that helps people think it through is, going back to number one, what is my income sources for the year going to be? Am I in an abnormally low tax year or can I make it so that my tax year is a little bit lower than usual by using some of those tax-free income sources? And the concept here is really I think for two reasons to consider in general. There’s always going to be reasons outside of this, but the two main reasons that anyone does a Roth conversion is the first one could be for the potential use of tax-free money in the future for yourself or basically creating a legacy for your inheritors so that they have tax-free money when they inherit the accounts.

                                    So those are the two major reasons, there’s ones outside of that. But obviously you want to be thinking about, hey, if I do this conversion, does it make sense to today pay the taxes on dollars that I’m not using? And sometimes that can be difficult for people to think through. We look at it very just numerically, where am I at in my current tax bracket today? How much room do I have left in this bracket or even going into the next bracket depending on how comfortable we are and what are our thoughts about the tax rates in the future? So there’s a lot of different things to consider when it comes to doing a Roth conversion and whether or not it makes sense for you.

                                    But we would always say at the beginning of the year, start thinking about it. And you definitely want to know what your tax situation is going to be for that calendar year. So, the sooner you start thinking about it, the better you have until the end of the year, 12/31, to do any Roth conversions. But the more your numbers, the better off you’re going to be in making that decision.

Radon Stancil:               All right, that leads us to tip number three, review your tax withholding. Now this is important for a lot of folks if you maybe started taking social security, maybe you’ve got a pension, maybe you’re taking IRA distributions. If you’re early in retirement, sometimes you might not know what’s the right withholding. And so there’s two scenarios that could be here. You under withhold, which means you owe taxes at the end of the year, and that’s okay as long as it’s not drastic. The other one is you’ve got too much withholding and you’re giving the IRS or the government too much money up upfront and then you get a big amount of money back after you file your taxes. That one’s not real good either because you don’t earn anything on that money, so there’s no reason in really giving that to the IRS ahead of time. You might as well try to make sure that you’re right on mark.

                                    So one of the things that we do for our clients is this, help them to review, hey, are we doing the right withholding? Should we increase it? Should we reduce it? I will tell you, a lot of times just people are nervous and they usually do too much withholding and then they’re getting this money back and that maybe feels good, but it’s not financially sound to do it that way. So just do a review, look at last year, look at what we think we’re going to be projected and either owing or not owing and then we can make those adjustments. Now you might not know that right at this moment here in 2023, but if we get into February, March, we’re going to have a much better feeling and we might want to make an adjustment there so that we make sure that we are paying what we need to but not paying too much and withholding.

Murs Tariq:                   All right. Number four, take advantage of deductions from medical expenses. I think the big thing here to be thinking about really is just keeping track of your medical expenses throughout the year and knowing what those are, how much they totaled to, that’s going to help yourself if you prepare the taxes or your CPA help you make the decision on what is deductible from that and what is not. But having the records is going to help with that altogether. So you may have a larger medical year in store for you in 2023, you may have planned some surgeries or some procedures or things like that, and those bills can add up and if you hit certain limits and certain criteria for your adjusted gross income, you can deduct some of that. It kind of goes back to whether you’re doing a standard deduction or if you’re itemizing on your tax return. But the only way to really think it through is keeping good track and good records of what those numbers are adding up to be.

                                    There’s certain other things like continuous care, retirement communities, nursing homes, things like that that also give you some medical advantages too. So you want to be thinking about those as well. But ultimately I think keeping good records and knowing what your numbers are when it comes to how much you’ve spent on medical for 2023.

Radon Stancil:               Alrighty. Let’s move into our next one here, which is take advantage of charitable contribution deductions. Now, some of you might very quickly say, look, my situation is such that I only take the standard deduction because I don’t itemize. So I really get no benefit from any of the charitable contributions that I make. Well, there’s two ways that you can take advantage of charitable contributions even if you only are currently on the standard deduction.

                                    The first one is doing what is called a qualified charitable distribution or a QCD. And what that means is that I take money directly from my IRA and I have that money written directly to a charity. We just got an email here at the first of the year and it’s a client who says, look, I know here’s where it’s going to go. I want to make sure that everything is set up right now so that this money goes to the charity directly from my IRA. Now, this could be the case if I want to use my required minimum distributions if I’m 72 or older and I could actually just take some distributions as well in addition to that if I wanted to and be able to contribute to a charity. So, keep that in mind. That this is really just a great way to get that benefit and you don’t have to worry about that. Standard deduction.

                                    Number two, and we’re going to do an entire podcast on this next one this year, and that is really being able to use donor advised funds to be able to stack my charity contributions, charitable contributions, over, say, a multi-year period in one lump sum. Let me just quickly explain.

                                    Let’s just say that I am a person who gives $10,000 a year to a charity. That’s kind of what I do. That’s my normal contributions. Well, that doesn’t really give me much of an advantage for my deduction because I’m still kind of riding with close to my standard deduction as a couple. And so I don’t get really any benefit from that. What I could do though is to say, hey, I’ve going to do this. I’m going to give this money to the charity. So what I could do is take say 30 or $40,000, put that into a donor advised fund, and I’m going to get that 30 or $40,000 of deduction that year in this calendar year that I do that, which gets me above my standard deduction, which is going to save me maybe a couple thousand bucks depending on the situation. And then I could just send $10,000 a year for the next three or four years out of that donor advised fund and everything works the exact same.

                                    This concept is something that can be very valuable. A lot of our clients love the idea of being able to do this. If you’re hearing this though and you go, wait a minute, that was a lot in a very short paragraph, we understand, we are going to do an entire podcast on this particular topic. I just want it to be in the top of your mind, make a note that I want to consider this potential option if I am charitably inclined already.

Murs Tariq:                   All right. Number six, don’t forget about quarterly payments to the IRS, obviously. A lot of us when you’re in your working years, you are a W2 type of employee and you get a paycheck and taxes are withheld directly out of your paycheck and you’ve never had to worry about quarterly payments. Some of you may be self-employed and that’s the only world that. And so what I want to make the point of is make sure we’re thinking about that, especially if maybe we’ve just transitioned to retirement.

                                    So here’s one scenario. Someone is retired and they withhold on their social security, so maybe they had a heavier capital gains type of year. What the IRS wants is that taxes are realized when the gains are realized. So, they don’t want you to wait and they’ll actually penalize you if you have a large enough amount of taxes that you don’t pay on and you say, well, I can just wait till April and take care of it when I file my tax return. There can be a penalty if you do not do enough withholding or you do not do quarterly payments throughout the year because when a gain is realized, the IRS expects to get their cut of that gain.

                                    So just be aware of quarterly payments if you’ve never done them before, I would always make sure if you’re working with a CPA or a financial advisor to be talking with them as well. Hey, we just sold this stock and there’s some capital gains from this. Do I need to do a quarterly here? Or I just sold a house and not all the gains has been excluded or it was investment property, do I need to do a quarterly here? Because the IRS will penalize you if you don’t pay the tax at the right time that you’re supposed to pay the tax. So just something to think about, especially if it’s in a scenario that you’re new to.

Radon Stancil:               Okay, that leads us to number eight… I’m sorry, number seven. Sorry, I got out of order here. Number seven, which is, don’t forget about state taxes. We talk a lot about making sure that we look at our federal tax rate, but sometimes we might not think about that state tax. So we might go make that contribution to the federal side of things, but we forget the state and we don’t make those payments and then we could get penalized there as well. So just short and simple, make sure that if you’re making your quarterly payments like Murs talked about earlier, not only to do that to the federal, but make sure I take care of the state as well. Now, there are a couple of states you do not have state tax, congratulations for living there. But for the majority of folks, having a state tax is something we all have to deal with, so don’t forget it.

Murs Tariq:                   All right. Number eight, consider part-time work. I know that could be a controversial statement. A lot of you are listening, trying to get to retirement and hoping that I don’t have to work any longer and getting out of that scenario and going to this other phase of life. But we do have quite a few clients that once they retire from their major career, they want to do something that is fulfilling to them or something that’s going to keep them busy, or they may go back and consult with the same job that they were working at. So, that that’s one idea is something that you’ve been putting off or wanting to do. So it let’s just say one reason could be just to keep you busy.

                                    Another major reason could be for medical insurance. If you happen to retire before the age of 65 where Medicare kicks in, and so say you retire at 60 and you have now no insurance, and getting private insurance is very expensive, so it could be worth considering part-time work that would include that as a benefit. And then as we’re talking about benefits, if you have part-time work and you are saving some money now, it can make you eligible if you have earned income to do certain things like contributing to retirement plans and stuff like that.

                                    So, I wouldn’t put it off the table. Some people work to do part-time work just so that they can have the fun fund that they want or to be able to travel a little bit more in their earlier years of retirement. So I’m not saying you got to do it, but I would say consider it for the many advantages that do come with working for a company like benefits, like tax benefits, things like that.

Radon Stancil:               All right. That brings us to number nine, don’t forget about required minimum distributions. Now, this really affects folks that are 72 years of age and older, but this is a big one and the reason why is if you’re going to turn 72… By the way, if you’re new to this, if you turn 72 in this year, 2023, then you’re going to have to take the distributions this year. Well, at least we think you should. There is one caveat that you could move it if you wanted to, but really the most people should go ahead and take it in the year that they turned 72.

                                    Now, you can do that a couple different ways. You can wait all the wait till December and take it, all one lump sum. If you don’t want to do that, you could take it throughout the year. A vast majority of our clients say, hey, let’s just take this one 12th. Meaning, we’ll take a payment every month, it’ll be kind of like this little income stream that comes in and they just do that throughout the year. But in order to do that, we kind of got to start that process right here in January.

                                    So if you know you’re going to need requirement minimum distributions, go ahead and take it. If you are already taking minimum distributions and you want to consider maybe taking them throughout the year, then go ahead and talk to us if you’re our client or a financial advisor and make sure that you’re setting that up so that it gets taken care of and it doesn’t sneak up on you here at the end of the year.

Murs Tariq:                   All right. The final one, number 10, keep track of your tax documents. So we’re in January of 2023. Sometime in February beginning or the end of February, you’re going to start getting mail that is including all of your 1099s from your investment accounts, your 1099 statements from social security, your W2s, all these different things that start coming in the mail that you need to compile together to get to your CPA so that they have everything they need to prepare your tax return or just to get to yourself if you’re doing it yourself. So keeping a good organized way of putting all these documents together I think is going to be a good start for the year as all those come in and making it a good practice throughout the year. So all the potential charitable contributions that you do that you get receipts for, you want to be able to prove that you did those and also remember that you did those. Any medical expenses, going back to what I was talking about on, what was that? That was number four. Any major medical expenses, those can help on your tax bill as well.

                                    So you want to be keeping good track of everything that it is required as we come down the line of getting to tax return season. And so that way when you go sit down with your CPA, you’re fully prepared and you’ve got a good experience there and you’re able to get things done. They fully know your situation, they’re not surprised by anything, or you’re not trying to hunt down things at the very last minute, because that becomes stressful for not just the CPA, but also for yourself. So keep track of those as they come in and throughout the year, it’s going to make your life a whole lot simpler.

Radon Stancil:               All right everyone, we hope this has been a little bit of a benefit to you and that you’ve got these 10 tax tips, that’s hard to say, 10 tax tips kind of clear in your mind. Remember to go check out the website, go to the blog page, we’ve got it all written out for you so you don’t have to think about making all these notes. It’s all there very clear. If you have listened to this or any of our episodes and you think, hey, I’d love to hop on a phone call and have a conversation with the one of you, feel free to go to our website, top right hand corner, click on the schedule call, our schedule comes up. You can just easily schedule a 15 minute complimentary, no obligation phone call with us.

                                    We hope this has been helpful and that we have a great year in 2023, and we’re going to continue to feed you as much information as we possibly can so that you can live all the way to and through retirement, having peace of mind. Have a great week.