Year-End Tax Cutting Ideas For 2022
202 Year End Tax Cutting Checklist
Here are some tax activities you can make to reduce your taxable income. But the year is quickly coming to a close, so plan accordingly.
Tax Loss Harvesting
If you own stock outside a tax-deferred retirement plan, you can sell your under-performing stocks by December 31st and use these losses to reduce any taxable capital gains. If your net capital losses exceed your gains, you can net up to $3,000 against other income such as wages. Losses over $3,000 can be used in future years.
Selling Appreciated Assets
Make a plan to sell appreciated assets in the tax year that helps you the most. While this strategy may be hard to accomplish this late in the year, it is still worthy of consideration. To do this, estimate your current year taxable income and compare it to next year’s projected income. Then sell the appreciated asset in the year that will yield the lowest tax. Remember to account for the 3.8% net investment income tax in your estimates.
Maximize Pre-Tax Retirement Savings
The deadline to contribute to a 401(k) plan for a 2022 taxable income reduction is December 31st. So if your employer’s plan allows it, consider making a last-minute lump sum contribution. For 2022, you can contribute up to $20,500 to a 401(k), plus another $6,500 if you’re age 50 or older. Even better, you have until April 18, 2023, to contribute up to $6,000 into a traditional IRA. And as long as your income does not exceed phaseout limits, you can reduce your taxable income on your 2022 tax return.
Bundle Your Deductions So You Can Itemize
If your personal deductions are near the following standard deduction amounts for 2022: $12,950 for singles, $19,400 for head of household, and $25,900 for married filing joint, consider bringing some of 2023’s spending into 2022 so you can itemize this year. For most, the easiest way is to do this is to make 2023’s planned charitable contributions before the end of 2022. You can also include gifts of appreciated stock where you get to deduct the fair market value without paying capital gains tax.
Review Your Health Spending Accounts
If you participate in a Health Savings Account (HSA), try to maximize your annual contribution to reduce your taxable income. Remember, these funds allow you to pay for qualified health expenses with pre-tax dollars. More importantly, unlike Flexible Spending Accounts (FSA), you can carry over all unused funds into future years. If you do have an FSA, you can carry forward a maximum of $570 from 2022 into 2023. The deadline for contributing to your Health Savings Account (HSA) and still getting a deduction for the 2022 tax year is April 18, 2023. The maximum contribution for 2022 is $3,650 if single and $7,300 for married couples.
While the year is quickly coming to an end, there is still time to reduce your 2022 tax liability, but only if you act now.
Organize Tax Records
This will make preparing a complete and accurate tax return easier. It helps you avoid errors that lead to processing delays that slow your refund and may also help you find overlooked deductions or credits. Here are some of the most important records you will need:
- Forms W-2 from your employer(s)
- Forms 1099 from banks, issuing agencies and other payers including unemployment compensation, dividends, pension, annuity or retirement plan distributions.
- Form 1099-K, 1099-MISC, W-2 or other income statement if you worked in the gig economy.
- Form 1099-INT if you were paid interest.
- Other income documents and records of digital asset transactions.
- Form 1095-A, Health Insurance Marketplace Statement, to reconcile advance payments or claims Premium Tax Credits for 2022 Marketplace coverage.
- IRS or other agency letters.
- CP01A Notice with your new Identity Protection PIN.
- Notify the IRS if your address changes and notify the Social Security Administration of a legal name change.
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