With the end of the 2022 calendar year quickly approaching, we thought it might be helpful to remind you of some things you can still do prior to the end of 2022. Below we have highlighted different ways you can take advantage of available tax breaks:
Try to max out your 401K before the end of the year. These contributions will dollar for dollar reduce your taxable income. Individuals can contribute $20,500 in 2022 and those over aged 50 can contribute an additional $6,500 for a total of $27,000.
If you can, make your January mortgage payment in December. This will give you an extra bump in interest deduction for 2022. If you have a property tax bill due next year you can also take care of that to take advantage of this additional tax break.
Make some last-minute charitable donations! Ensure that you get a receipt, and that the charity is a 501(c)(3). Unfortunately, donation drop-off boxes on public streets do not count.
Sell off any bad investments if you have capital gains. This is called ‘loss harvesting’. You can use these losses for investments that you’re sure aren’t going to bounce back to offset $3,000 of gains in the current year. If you have more than $3,000 in losses, they will roll forward to offset next years’ gains.
Be careful of your compensation though as these amounts phase out beginning at $68,000 as a single person and $109,000 married filing jointly. Basically from $68k-$78k and $109k-$129k there is a phase out of the amount so the more you make the less you can claim.
If you have a Flexible Spending Account (FSA), be sure you spend all the money in your account. The IRS has a ‘use it or lose it’ rule, and if you don’t use it by year end, you forfeit the remaining balance.
If you’re 72 or older and have either an IRA, SEP IRA, SIMPLE IRA, or retirement account, withdraw the Required Minimum Distribution (RMD). These were waived for 2020 but are once again required for 2022, and the penalty is potentially huge. If you forget to take this, 50% of the amount that should have been distributed will be taken as the penalty.
Be sure you are having enough tax withheld from your paycheck. The penalty for underpayment of taxes and the associated interest is incredibly high.
529 College Savings Plan
Depending on your state, contributing to a 529 college savings plan could save you money on your state taxes.
Work With A CPA
Think about finding yourself a good CPA. Taxes are complicated this year due to child tax credits, at home offices and expenses, and other constantly changing tax laws. It might be worth spending a little bit more money to potentially save more on taxes and to know they’re accurate.
If you have any questions, please contact your financial advisor or a team member to help you better understand your options. We hope everyone has a wonderful holiday season and great start to the new year.