Dear Clients and Friends of HKP,
As we approach the end of 2023, it’s important to reflect on significant changes in the tax landscape and prepare for the year ahead. This letter provides a summary of key updates in the Washington State tax environment and the broader Federal income tax changes. 2023 has been marked by notable increases in interest rates, which have disrupted our economy. Despite passing the Inflation Reduction Act in 2022, inflation persists today, making costs increasingly impactful for all of us. This backdrop of economic uncertainty underscores the importance of staying informed and adaptable in our financial and tax strategies.
Washington State residents saw a notable change in taxes back in 2022 in the tax on long-term capital gains. Though initially challenged, this tax survived scrutiny when The Washington Supreme Court upheld the tax as constitutional. Currently, there is a petition for the U.S. Supreme Court to weigh in on the matter. For residents of Washington, the tax is imposed on long-term capital gains exceeding $250,000 at a rate of 7%, with a few exceptions. Speak with your financial advisor and your HKP tax advisor before year-end for planning strategies regarding your Washington capital gains tax on 2023 income.
If you are considering buying an electric or plug-in hybrid vehicle, you may qualify for a credit of up to $7,500. Waiting to buy an electric vehicle until 2024 potentially will allow you to claim an electric vehicle credit by transferring it to participating dealers at the time of purchase, rather than waiting to claim the credit on your tax return.
Taxpayers should expect to receive more Forms 1099 for 2023. New IRS regulations require third-party payment processors such as PayPal, Stripe, Venmo, and countless others to provide Form 1099-K to individuals who received more than $600 worth of business transactions. The money reported may inadvertently include personal transactions as well. Keep these forms with your tax records and we will work with you to determine proper treatment and reporting on your tax return.
There is still time to contribute to your retirement plan for 2023. As detailed further in Addendum A, annual 401(k) contribution and catch-up contribution limits increased in 2023. IRA contribution limits also increased for 2023. Contribution amounts will increase again for 2024.
We are honored to be your trusted advisors. We hope that this letter provides some general insights. Please read the addenda below for additional details. We encourage you to schedule a call or meeting with us to tailor strategic tax planning for your individual situation.
See addendums included for further information:
Addendum A & B: General Tax Strategies for Individuals & Business Owners
Addendum C: 2023 and 2024 Thresholds