2022 Tax Planning Guide
As if the Grinch needed competition, the IRS recently warned taxpayers to expect lower refunds in 2023 due to several changes in the tax code.
With Congress constantly changing the tax code, we recommend reviewing your potential tax liability at least once per year, or if you have a significant financial event. You can reach us at firstname.lastname@example.org or (425) 455-1620 if you’d like to set up an appointment.
Below are steps you can take to manage your tax bill before the end of the year.
Avoid Penalties & Interest
The IRS assesses penalties and interest if it determines that you’ve been underpaying your tax bill. You might owe a penalty if you owe the IRS more than $1,000 after subtracting withholdings and credits, or if you paid less than 90% of the taxes owed and less than the taxes due the previous year.
With the stock and cryptocurrency markets down over the past year, many investors have unrealized losses in some of their investments. By selling an asset in a taxable account and realizing the loss, you can offset gains in other investments or reduce your taxable income by up to $3,000 per year. Make sure to consult with your financial adviser before making any investment decisions.
Contribute to a Retirement Account
While toys and candy may be the gifts that young kids are hoping for this holiday season, a contribution to a 529 account is the gift that keeps on giving. Contributing to a 529 won’t reduce your federal tax bill (though it may reduce your state taxes, depending on where you live), but it will allow you to grow your contribution tax-free until the child decides to use the money for qualified, educational expenses.
You should also make sure to contribute as much as possible to your employer’s 401(k). In 2022, you can contribute up to $20,500 or up to $27,000 if you’re over 50 years old. Many employers now offer both a traditional 401(k) option (where contributions reduce your taxable income this year, but investment gains and withdrawals in the future are taxable) and a Roth 401(k) (where contributions don’t reduce your taxable income this year, but investment gains and future withdrawals are tax-free).
Send Your RMD Directly to Charity
If you are required to take distributions from your IRA and don’t need the money, you can donate the proceeds directly to charity. This qualified charitable distribution means you won’t have to pay taxes on the money you’re taking out of your IRA, and it also allows you to have a positive impact on the charity of your choice.
Give Us a Call!
If you’re not sure where you stand with the IRS, please contact us. We recommend sitting down once per year outside of tax season with your CPA to discuss tax planning so you can avoid any surprises.