Written by: Jonathan Hitter, CPA, MST, CGMMA
In the November 2022 General Election, Voters approved an amendment to the Massachusetts Constitution, nicknamed the ‘Millionaire’s Tax.’ Starting in 2023, an additional 4% income tax will be placed on any ‘portion of annual taxable income in excess of $1 million.’ Fortunately, there are some steps you can take before the end of the year to help decrease your taxable income next year.
If you are unfamiliar with the Millionaire’s Tax, we published this article earlier in the year, which provides an overview. Consider these six strategies to help reduce your tax liability.
- Accelerate your income: Consider your options for pulling 2023 income into 2022. Do you have a major sale going through that could close earlier? What about major retirement plan distributions?
- Evaluate your filing status: If you are married and typically file jointly, consider filing your state return as ‘married filing separately to split your taxable income. The current constitutional amendment refers only to the $1 million threshold and does not define how that is determined for married filers.
- Change to the installment method: Major sales made using the installment method can decrease a windfall increase to taxable income. This method spreads the gain out over the course of the installment period. Note: Massachusetts law requires a separate election and security posting for sales of more than $1 million.
- Reevaluate retirement plans: Your current plan for withdrawing funds from your retirement plans may need to be adjusted. Avoid lumping large withdrawals from taxable accounts in one year, which could inflate your income. Roth IRA conversions are another option when staged properly.
- Gift to family and friends: Use non-grantor trusts to transfer assets and reduce your income. These could include a non-grantor trust, spousal limited access non-grantor trust (SLANT), or an incomplete gift non-grantor trust (ING).
- Move your primary residence: Another option for reducing your tax burden would be to move altogether. This would allow you to avoid the 4% annual millionaire’s tax, as you would have no tax liability in the state of Massachusetts.
As with any new tax, planning is key to managing your tax liabilities. Please reach out to our team of knowledgeable tax professionals to discuss your next steps today.