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December 31 tax timing situations

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Millions will celebrate the end of 2023 on Sunday, Dec. 31. But the last day of the year isn't just for partying.

Dec. 31 also is an important tax day.

It's the deadline to take care of some tasks that could affect your 2023 tax bill. Other things that happen on the year's final day also have tax implications.

Here are five common end-of-year situations that have Dec. 31 tax timing implications.

1. Getting married: If you say "I do" on 12/31, then the Internal Revenue Service considers you married for the whole year. That means when you file your tax return next year, it must be as married filing jointly or married filing separately.

I've heard way too many times from newlyweds who think that since they weren't married for the full year, each spouse can still file as individual taxpayers. Nope. The only filing statuses the IRS will accepted from legally married couples, even if they tied the knot on the last day of the year, is married filing jointly or married filing separately.

If taxes matter vis-à-vis your nuptials (and they did, but for other reasons, to the hubby and me lo those many years ago when wed), then postpone your vows for a few days.

2. Legally breaking up: The same full-year marital status rule holds true for couples who determine that they're better off apart. Your marital status on Dec. 31 still determines your tax status for the entire year.

Of course, it's not as easy to shift a legal break from your partner as it is to reschedule a wedding. You're at the mercy of the court system and when a judge issues your final divorce decree. But if it happens late in the year, even on the last day of the year, then you are a single taxpayer again.

A quick filing status note here. If you have children and are the custodial parent, you'll be able to file as head of household. That's generally a more tax advantageous filing status than single, which is how the other parent/ex-spouse must file.

3. Adding to your family: Biology, nature, and just plain old luck, not the tax code, largely are in charge when you welcome a new bundle of joy or older child into your family. Lots of expectant parents hope their child will be born on Jan. 1, usually because they want the publicity and presents that accompany First Baby of the Year celebrations across the country. But the tax rewards are better if your baby is born on Dec. 31. That child can be claimed as your dependent for the full preceding 364 days. And that means you get the Child Tax Credit and other child-related tax breaks for which you qualify for that tax year.

It's the same if you grow your family via adoption. You can claim an adopted child as your dependent in the tax year that the adoption is legally finalized. If that's on Dec. 31, then it's for that full year.

Be sure you get a Social Security number for your new family members. It will be required when you do file your taxes and claim any of the family-friendly tax credits for which you now qualify.

And remember that there always are lots of familial complications, even before you get into taxes. If you have a question about what tax breaks apply to you and your child, talk with a tax professional.

4. Donating to charities: Are your email and snail mail boxes as full as mine right now with pleas from nonprofits for donations? I swear I checked the don't sell my info as part of a mailing list when I gave last year.

There's a reason for the end-of-year avalanche of charitable donation requests. The organizations know that folks are doing some last-minute, back of the envelope tax calculations and have realized that itemizing and claiming tax deductible donations is the way to go next filing season.

But for the deductions to count this tax year, you must make them by Dec. 31. The good news here is the donations must be made, not necessarily received by the charity, on that day. So if you mail a check dated Dec. 31, it counts, even if the check isn't cashed until January. Ditto for donations made via debit or credit cards, as long as the transaction shows up on your statement as being made on the last day of the year.

5. Counting last-minute income: All of us like to get money, especially for jobs we've done. But sometimes we wish it could have arrived a tad later. That's the case when a client finally pays up late in the year. It's money you have to add to your taxable income tally when you file your return.

In these cases, the IRS looks at when you constructively received the money. This, says the tax agency, is when an amount is credited to your account or made available to you without restriction. You do not need to have possession of it. If you authorize someone to be your agent and receive income for you, you are considered to have received it when your agent receives it, even if you don't get it until much later.

And no, you cannot hold checks or postpone taking possession of a payment to push it into the subsequent tax year. You must report the income in the year the property is received or made available to you without restriction.

What about that payment check dated Dec. 31, but which didn't arrive until Jan. 5? This is where things get tricky. And as I noted in an earlier post on constructively received income, this is particularly problematic when the payor sends you a 1099 for the year the check was dated. If you find yourself in this situation, check out the post. Also talk with a tax pro.

And definitely discuss payment timing with that client so that you don't have to worry about a repeat this time next year.

Now that you've got your year-end tax matters under control, get back to your New Year's Eve party planning.

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