As the year draws to a close, it’s a critical time to evaluate planning strategies that may help reduce your tax liability for this year and next. Successful tax planning depends on several factors, including anticipated changes in income, deductions, and potential life events. Here are some key considerations and opportunities to review as part of your year-end tax strategy:

Missouri SALT Parity Act

Effective for tax years ending on or after December 31, 2022, the Missouri SALT Parity Act provides a valuable opportunity for pass-through entities, such as S-corporations and partnerships. By electing to be taxed at the entity level, these businesses can deduct state income tax paid without being subject to the federal $10,000 state and local tax (SALT) deduction cap on individual owners’ Form 1040 tax returns.

Missouri does not require estimated tax payments for electing pass-through entities for 2024, but making a payment before year-end could provide a deduction for the entity in 2024. Additionally, many other states offer similar pass-through entity taxes, which may benefit Missouri residents with out-of-state businesses.

Bonus Depreciation

The ability to immediately deduct 100% of the cost of most machinery and equipment purchases has been a popular tax-saving tool in recent years. However, this bonus depreciation allowance has decreased to a first-year maximum deduction of 60% beginning January 1, 2024, and is scheduled to decrease further to 40% on January 1, 2025. Accelerating planned asset purchases before year-end could maximize your tax benefits.

Energy-Efficient Tax Credits

The Inflation Reduction Act of 2022 introduced new tax credits for energy-efficient additions to your home, business, and personal property assets. These include credits for solar energy systems, electric vehicle purchases, and other “clean” vehicles. Businesses and individuals may want to explore these opportunities to offset costs while contributing to sustainability efforts.

Retirement Planning Under SECURE Act 2.0

The SECURE Act 2.0, passed in December 2022, includes several provisions aimed at enhancing retirement savings for individuals and businesses. Key highlights include:

• • Increasing the required minimum distribution (RMD) age to 73 (effective January 1, 2023, for those who turned 72 after December 31, 2022).
  • Expanded catch-up contribution options.
  • Elimination of RMDs for qualified employer Roth plan accounts starting in 2024.
  • New options for surviving spouses beginning in 2024.
  • Penalty-free transfers from 529 plans to Roth IRAs starting in 2024.
  • Employer retirement plan match for student loan payments starting in 2024.
  • Increased credits for new employer plans and individual contributions.

Preparing for Year-End

If you’d like assistance with year-end tax planning, it’s helpful to gather the following documentation:

• • Latest pay stubs for you and your spouse.
  • Details of gains from stock, investment, or property sales.
  • Estimates of business, farm, and rental income.
  • Itemized deduction estimates.
  • Information on asset purchases or sales.
  • Record of estimated tax payments.
  • Retirement distribution statements.

Year-end tax planning is an excellent opportunity to evaluate potential savings strategies and make sure you’re compliance with evolving tax laws. If you have questions or would like to discuss your specific situation, we encourage you to reach out to your KPM advisor.