6. Borrow – or sell select holdings

Borrowing against your portfolio of marketable securities can be a handy solution, especially if you expect an influx of cash in the relatively near future. The associated costs of borrowing, even at higher interest rates, may be outweighed by other considerations, such as not having to sell securities or other assets you’d prefer to keep.

You can’t deduct the interest on funds you borrow to pay taxes – but you can deduct the interest if you’re borrowing to invest, to the extent of investment income. So you might want to borrow to invest and deduct the interest paid on those borrowings – meanwhile using cash from other sources to pay your taxes.

If you don’t want to borrow, review your holdings: If your portfolio has both unrealized gains and losses, consider selling holdings that would produce no net capital gains, and then use the proceeds to pay the taxes due.

Plan for 2024’s changing tax landscape

There are some issues and opportunities particular to this year that you may want to consider as soon as possible:

7. Contribute more to tax-deferred accounts

In 2024, you can contribute $23,000 to your 401(k) account if you are under age 50, or $30,500 if you are 50 or older. Also: The combined amount your employer and you can contribute has risen to $69,000 or $76,500, respectively, depending on your age.

Further, a law enacted at the end of 2022 provides that employees may designate an employer’s matching contributions as Roth contributions, as long as the employee is 100% vested in any employer contributions.

Be sure that the withholdings from your pay are properly calibrated to account for these changes.

These figures also apply to self-employed defined contribution accounts. One relatively new option for SEP and SIMPLE IRAs: Up to 100% of the contribution can be designated as a contribution to a Roth account, which is significant, given the higher contribution limits for these plans.

In addition, if you’ll have a bonus (or other performance-based compensation) to set aside in a deferred compensation account, you may have only until June 30 to do so. Check with your employer to confirm your deadlines to make elections and to identify the maximum you might defer under the plan. Then, based on your cash flow needs now and in the future, you can decide what might be the appropriate amount for you to defer.

8. Note new guidelines for RMDs and QCDs

Required minimum distributions (RMDs): The mandatory starting age is now 73. Generally, RMDs have to be taken by December 31, but if you turn 73 in 2024, you are not required to take your first RMD until April 1, 2025. Any subsequent RMDs must be taken by December 31.

Remember, Roth IRAs are not subject to the RMD rules during the owner’s lifetime, and beginning in 2024, designated Roth accounts in a 401(k) plan (and certain other qualified plans) are not subject to the RMD rules while the owner is still alive.

RMDs are based on two factors: your age and the balances in your tax-deferred accounts on December 31 of the previous year. We think it’s generally a good idea to wait until the end of the year to take RMDs because asset values tend to rise. But always check with your financial and tax advisors to plan for when you must and should take your RMDs.

Qualified charitable distributions (QCDs): Before taking your RMD this year, decide whether you want to make a QCD to a public charity. Beginning this year, this amount is now inflation-adjusted, and has increased from $100,000 last year to $105,000 for 2024. A QCD counts toward the RMD amount. (Taxpayers can also contribute $53,000 of a QCD to charitable remainder trusts or charitable annuities.) And unlike the rest of an RMD, the QCD amount is excluded from your gross income.

But please note: You can’t claim a QCD as an income tax charitable deduction. Also, the QCD cannot be made to a DAF or any kind of private foundation.

Finally, if you own low-basis public securities in a taxable account and plan to donate only a finite amount to charity, you might be economically better off donating those securities to charity rather than making the donation via a QCD.

9. Donate appreciated stock

Following the equity market rally at the end of 2023, you likely hold some assets at a gain. As noted, it is extremely tax-wise to donate public equities, in kind, to a public charity – or to a DAF, private operating foundation or private non-operating foundation. Here’s why: In addition to receiving a deduction based on the fair market value of the stock you donate, you also avoid tax on the unrealized gain on those equities.

That said, beware: Make sure you’ve held the donated stock, unhedged, for more than one year. The holding period may be even longer if the securities were received in connection with services performed as a partner for certain profits interests (e.g., at a hedge fund, venture capital or private equity fund).

Also be sure the financial firm holding your shares donates the correct lot, and if that lot has ever been transferred from another firm, that the basis and holding period information is replicated correctly by the new firm.

10. Review quarterly estimated payments

Review both your actual 2023 and anticipated 2024 tax bills to determine your minimum necessary quarterly estimated payments for this year.

If you expect outsized income in 2024, compared to 2023, you may want to rely on the actual payments you made in 2023 to determine the estimated payments you make this year. This is because the law allows taxpayers to make estimated payments during the course of the year, interest- and penalty-free, up to whichever is less: (a) 110% of the prior year’s taxes, or (b) 90% of the current year’s taxes.

Thanks to this rule, you can keep more of your pre-tax income until the tax filing deadline in April 2025 and invest that income safely – such as in U.S. Treasuries maturing by next April.

11. Evaluate your choice of tax domicile

Many taxpayers have moved in recent years, in some part for tax reasons. It requires a great deal of planning (and sometimes triggers headaches!) to establish domicile in the state to which you want to pay taxes this year.

Also: It may be easier to switch the situs of a trust you’ve created, so review those as well. A trust governed by one state’s laws for administrative purposes may be subject to tax by a different state based on a number of factors, including the residence of the grantor and/or current trustees.

12. Optimize annual exclusion gifts

Consider making annual exclusion gifts (up to $18,000 per donor, per donee) early in the year so that any growth on these assets over the course of the year occurs off your balance sheet.

13. Harvest capital losses

Consider implementing a systematic program for harvesting capital losses for your securities portfolios. Doing so might help you take advantage of any market downturns while avoiding the wash sale rules so adverse to taxpayers – and to bank those losses to offset either already realized, or expected future, capital gains.⁵

While you’re reviewing your portfolio with an eye to harvesting losses, be sure to evaluate the tax efficiency of your holdings across all of your family’s accounts, including IRAs and trusts. A key contributor to growing family wealth over time is making sure the proper accounts own the proper assets. For instance, where possible, have tax-deferred accounts own tax-inefficient assets, and taxable accounts own tax-efficient assets. Asset location can be as important as asset allocation to wealth growth and preservation.

We can help

We closely monitor both potential and enacted tax law changes at the federal and state levels. While we don’t expect the current Congress to pass any laws that would materially affect ordinary income or capital gains tax rates, we do expect some action in the next Congress, that is to say in 2025.

Of course, the states could change their tax rates – and many did as of January 1, 2024.

There are many options you may consider for your 2023 taxes and to prepare for 2024 and beyond. Your J.P. Morgan advisor can work with your tax professionals to help decide which options are best suited for you.