Key Tax Planning Highlights
Most of this years tax legislation and guidance has specific focuses, mainly on green energy investments and retirement planning.
While no major legislative changes have been approved by Congress this year, the IRS has been providing guidance on implementing key aspects of the 2022 tax legislation. However, most of this legislation and guidance has specific focuses, mainly on green energy investments and retirement planning.
This means fewer tax changes in 2023 than in years past. While there are always new strategies to consider, and indeed there are some changes from recent legislation that are in effect for 2023, the usual tactics of deferring income and increasing current deductions still apply for 2023.
Legislation
As mentioned earlier, there have been no major tax bills passed in 2023. However, there is a potential for that to change before ringing in the New Year.
At the end of September, Congress passed a continuing resolution to avoid a government shutdown but only extended that government funding to November 17. Since then, the House and Senate have passed another temporary spending bill that will extend government funding through January 2024.
Green Energy
Some new or expanded provisions are in effect for the 2023 tax year as a result of the Inflation Reduction Act of 2022.
2023 is the first year that the new Energy Efficiency Home Improvement Credit will be available. The credit is generally equal to 30% of the taxpayer’s qualified expenses up to an annual maximum of $1,200 (which can include doors, windows, other qualifying energy property, and even a home energy audit). Also available is the Residential Clean Energy Credit, which is also equal to 30% of qualified expenses but with no annual maximum or lifetime limit. This credit applies to installing certain energy properties like solar cells, small wind turbines, or battery storage. Restrictions and limitations do apply to both credits.
The much more broadly applicable credit for the purchase of electric vehicles was eliminated upon the passage of the Inflation Reduction Act of 2022. In its place are two new credits, one $7,500 credit for purchasing a new clean vehicle (with much more stringent requirements compared to the old credit) and a $4,000 credit for purchasing a used clean vehicle.
Claiming any of these credits is not urgent. They are not scheduled to expire for many years. But there is no time like the present to claim a tax credit, and taxpayers looking to make these types of investments can realize immediate tax benefits for 2023 if they act before the end of the year. Additionally, these credits are not necessarily supported on a bipartisan basis, so any shift in control of Congress could lead to an accelerated expiration.