In the final weeks of every year, it can pay to review your situation and plan ahead for tax season. To lower your tax bill for 2022, here are six possibilities to consider.
1. Be aware of the standard deduction amount this year — so you can choose the tax filing strategy that saves you more money
Remember: Itemized deductions are only useful if they exceed the standard deduction amounts, which increased for 2022:
- $12,950 for single filers (up $400)
- $25,900 for married filing jointly (up $800)
If your deductions are close to these amounts, evaluate your options. For example, does it make sense to increase your charitable giving before the year’s end to take advantage of the increased savings you may realize from taking the itemized deduction over the standard deduction?
Deadline to complete this move: Begin to weigh your options in the final months of 2022 so you have time to complete any moves that can benefit you by the end of the year.
2. Donate to a qualified charity
- If you are 70.5 years or older and would like to support a charity, consider making a qualified charitable distribution (QCD) up to $100,000 directly from an IRA to a qualified charity. A QCD keeps IRA distributions from impacting your adjusted gross income (AGI) now and in the future. It works whether you take the standard deduction or itemize deductions, and it can count toward your required minimum distribution (RMD), which starts at age 72, if you have one.
- If you are younger than 70.5 years and plan to take the itemized deduction, consider donating to a qualified charity. Your donation could help offset taxes you may owe
Deadline to complete this move: Make your donation or your QCD by Dec. 31, 2022. Be sure to check with your bank or broker to see if an earlier deadline applies so that your request can be completed by Dec. 31.
3. Deduct medical expenses
If you itemize your tax deductions, you may be able to deduct eligible unreimbursed medical expenses that exceed 7.5% of your adjusted gross income (AGI). There is a wide range of deductible medical expenses — talk to a tax professional or visit the IRS website for details.
Deadline to complete this move: All eligible medical expenses must be paid by Dec. 31, 2022, to qualify for the deduction in the 2022 tax year.
Keep in mind: To deduct these expenses, it’s all about when the medical bill is paid — not when the medical procedure or service was performed. For example, if you undergo surgery at the end of 2022, but don’t pay the bill until the beginning of 2023, those deductions will be eligible for the 2023 tax year — not 2022.
4. Consider tax-loss harvesting
With the recent market volatility, it’s likely you’ve experienced some difficult losses in 2022. However, investment losses can be turned into a tax-savings opportunity through a strategy called tax-loss harvesting, which can help lower your tax bill.
To employ this strategy, please reach out to us so we can assess your losses. We may recommend selling poor performing stocks and then immediately reinvesting in an asset that offers a similar risk/return profile as what you sold. This is a complex strategy, so it’s important to consult with us before acting. For example, buying the same security immediately after taking the loss can result in losing part, or all, of the loss because of the wash sale rule.
Deadline to complete this move: Work with your advisor to complete any tax-loss harvesting trades by Dec. 31, 2022.
5. Contribute to an IRA
Consider contributing to your traditional or Roth IRA — you can do so in a lump sum if you’d like. The maximum total annual contribution across all IRAs for 2022 is $6,000, or $7,000 if you are 50 or older.
- Traditional IRA: Contributions may be tax deductible, depending on your income level and whether you are covered by a retirement plan at work.
- Roth IRA: Depending on your income level, you may be eligible to contribute to a Roth. Roth IRAs are funded with after-tax dollars, but distributions are tax free in retirement if certain conditions are met.
Deadline to complete this move: Filers have until April 18, 2023, to make an IRA contribution that counts toward the 2022 tax year.
6. Contribute to your health savings account
If you’re in a high-deductible health plan, you might qualify for a health savings account. Your contributions are pre-tax, which reduces your taxable income. Annual contribution amounts are higher for the 2022 tax year:
- $3,650 individual coverage (up $50)
- $7,300 family coverage (up $100)
- Individuals ages 55 and older can make an additional $1,000 catch-up contribution.
Deadline to complete this move: The HSA contribution deadline for the 2022 tax year is April 18, 2023.
We can help with year-end planning
The final weeks of the year are a great time to meet with us. We can review your financial situation with your tax professional and discuss how you may be able to take advantage of these and other tax-saving opportunities.