Don't Mess With Taxes

Getting your tax ducks in a row takes on a different meaning, and bird, in November. But whatever fowl you choose for the metaphor, make some time this month to complete tasks that will prevent tax turkeys. (Photo by Mohan Nannapaneni)

Hello, November! We welcome cooler (but not cold!) temperatures, holiday feasts (yes, I love pumpkin pie), and seeing family and friends for the first time in, well, months.

This penultimate month of the year is also a good time to tackle some tax tasks.

I know, you already have a lot on your November to-do list. But check out these four moves. They could save you some taxes, this year or on future returns.

And we all could use some savings as all the year-end holidays rapidly approach.

1. Feather you workplace retirement nest. Sorry, not sorry, for that fowl pun. But seriously, this is the perfect time to check out your retirement savings, especially the one you have at work.

One of the best job perks is the ability to put away tax-deferred, or on some cases, tax-free money for when you no longer work. These savings, known as 401(k) plans in the private sector, also are often increased by employer matching contributions.

When you signed up for your company's 401(k), you picked a percentage of each paycheck to go into the account. You might be able to increase that.

Unlike individual retirement arrangements (IRAs) where you have until the tax-filing deadline next year to make contributions, your 401(k) money for 2023 must be put into the account by the end of the tax year.

Just how often you can adjust your contribution amount is generally determined by your employer and your retirement plan. It could be once a year, each quarter, or as often as you like. Check with your employer to see if you can bump up your contribution level now. If you can, do so.

Just a 1 percent increase, even for the few remaining 2023 paychecks, makes a difference down the road for your workplace retirement stash. While you're probably not near the 401(k) contributions level of $22,500 for 2023, putting away as much as you can as early as you can will pay off later.

And as a savings preview, the Internal Revenue Service today announced that the maximum employee 401(k) contribution will go up to $23,000 in 2024.

Added preview: Come back tomorrow for more on the just-released inflation-adjusted retirement figures. They are part of the ol' blog's 10-part tax-related 2024 inflation series.

UPDATE, Thursday, Nov. 2, 2023: As promised, you can now check out the 2024 cost-of-living adjustments to a variety of tax-favored retirement plans. 

2. Consider converting to a Roth IRA. If in addition to your workplace retirement savings you also have a traditional IRA, you might want to consider converting it to a Roth version.

A traditional IRA provides some taxpayers with immediate deductions when they file their returns. But when they eventually take out the pre-tax money to pay for retirement expenses, the distributions are taxed as ordinary income at the rates in effect then.

A Roth IRA, however, is funded with already taxed contributions. The benefit here is that when you withdraw the qualified funds, you won't owe Uncle Sam any more money.

Of course, when you convert an IRA, you'll owe tax on the traditional retirement account's tax-deferred dollars that you move into a Roth. But tax rates now are historically low.

And you don't have to convert the full traditional IRA all at once. Moving even a part, which will make the tax bite less, could be worthwhile. By reducing the value of your traditional IRA even a bit will mean you'll face fewer taxes when you face required minimum distributions (RMDs) down the retirement road.

Don't make this, or any, retirement plan decision lightly. A Roth IRA conversion can't be undone, so run the numbers and of course talk with your tax and financial advisers. You want to make the best overall move for your personal situation. You never want to, as the old saying let the tax tail wag the dog.

3. Review your full portfolio. Investing in the stock market is basically financial gambling, even when you do your homework. And you need to follow up on those lessons throughout the tax year.

If your stock picks have not done so well this year, now could be the time to sell. Or, if your  equity assets have grown, it could be worthwhile to take the cash, And if you have both situations, it could be good tax news.

Selling losing investments, known as stock loss harvesting, could offset any gains, reducing or eliminating the table amount. And if you do have more gains than losses, which is the ultimate investing goal, the capital gains tax on long-term holdings generally is lower than most investors' ordinary tax rate.

Cashing in assets that have gained in value also is worth a look. This so-called tax gain harvesting, as its moniker suggests, you harvest capital gains to get the money to use for other things, such as long-planned international travel.

However, if you think the holding you just sold will grow even more, you can use your profits on its sale to buy the asset and reset its basis.

Basis is what is used to determine your taxable gain. You subtract the asset's basis, which starts with its purchase price, from its sales price. The difference is your taxable profit.

A larger starting price point, however, means the basis calculations start at a higher level. And the larger the basis, the lower subsequent tax bills when you sell the asset (again).

Even better, there aren't any wash sale complications, since that no-repurchase rule applies only when you unload losing stocks.

4. Don't miss November's Tax Days. No, I'm not suffering from a Halloween candy hangover. We actually estimated well, and had only a few leftover mini candy bars.

I'm talking about a couple of new 2022 Tax Days for those dealing with special disaster-related filing circumstances.

The first date of note is Nov. 15. That's the due date for filers in Vermont who earlier this year endured historic, and disastrous, flooding.

The very next day is the extra-extended due date for most California taxpayers. Specifically, the Nov. 16 deadline is for individuals and business owners 55 of California's 58 counties who endured major disasters earlier this yea

I know these dates are for only two states, but the number of affected Golden State taxpayers earns the two calendar notices a place in this month's tax moves.

More November tax moves: I know, even these four items, especially those related to investments, take time. And time is at a premium in this busy month.

But taking care of tax tasks now could help you cut your 2023 (or a future) tax bill. So try to make some time for tax moves that fit your situation this November.

And if you're industrious and want some more tax topics to think about, check out the ol' blog's right column for a few more November Tax Moves. They're under the so-named heading, just below the countdown clock ticking off the time left here in tax year 2023.

Also, as a personal aside, please touch base with me. I have some items on my list that I'd  be happy to send your way! JK. Sorta.

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