Taking a Proactive Approach To Tax Preparation Can Open Up New Opportunities For Q1

October 2, 2023

Preparing For The 2023 Tax Season

Few people thoroughly enjoy tax season and the burden of collecting documentation and rushing to get it to your tax preparer; however, taking a proactive rather than a reactive approach can open up many opportunities to budget for new investments and initiatives at the start of Q1.

Here are some tax planning tips to help you coast through your tax preparation and get on with income-producing activities even prior to the new year.

It is important to note that tax planning is a complex subject and we strongly recommend consulting with your financial advisor or a tax professional to make responsible tax decisions based on your specific circumstances.

Understanding Tax Planning

There are several things to consider with tax planning. You have to account for the timing of income, timing of major purchases, and expenditures throughout the year.

The selection of investments and types of retirement plans you choose can also help to create additional deductions that are impactful when you file your taxes.

Real estate investments often fall under the category of passive activities, subject to specific tax rules. Skillful management of passive activities enables investors to optimize tax deductions, thereby reducing overall tax liabilities.

IRS rules on passive activity as of 2022

Gather all necessary documentation:

Before you even start, ensure you have all the required documents. Having all necessary documentation in hand will reduce the chances of overlooking significant details. This includes W-2s, 1099s, receipts for all deductible expenses, and other relevant financial statements.

Review the previous year’s return:

This serves as a helpful reference, especially if there haven’t been many changes in your financial situation. Reviewing the prior year’s return can be surprisingly effective and serve to double-check some of the more tedious sections on your return that could easily be entered incorrectly by mistake. Items like:

  • Filing Status
  • Unclaimed Tax Credits
  • Missed Deductions
  • Carryforwards

Looking at your prior year serves as an additional reminder of things you need to collect for your tax preparer.

Tax- Loss Harvesting

Tax-loss harvesting is also known as tax-loss selling. This is another tax planning strategy that involves strategically selling investments to offset capital gains with capital losses. A lot of investors use this strategy at the end of the year when assessing their portfolio performance. If you have an asset that shows a loss it can be sold to claim a credit against other profitable assets.

According to Vanguard Direct indexing strategies use tax-loss harvesting to help investors potentially earn better returns.

Stay updated on tax laws

Tax laws and regulations can change annually. Familiarizing yourself with these changes can help you take advantage of new deductions or credits and avoid potential pitfalls.

News and announcements concerning changes can be found at IRS.gov

Charitable Contributions

Charitable contributions can be an excellent last-minute opportunity to take additional deductions. According to Daffy With the recent 2023 IRS updates due to inflation as well as any personal changes (a new job, home, or medical expense), it’s a smart time to tune up your tax strategy and see how you can maximize your charitable contributions and continue making an impact on the causes and organizations you care about.

Getting a jump on your tax planning can help clear a path for new investments in Q1. If you are interested in exploring what opportunities are currently available or would like to have a personalized Multifamily investment strategy based on your end-of-year planning, contact us today.  A lot of investors have found our investments helpful in reducing their passive income tax liability (commonly surgery center income) through the passive losses our investments create.

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