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Year-End Tax Planning Moves: Consider These Ways to Lower Your Tax Bill While There’s Still Time

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Oh, the weather outside is frightful – which can only mean one thing: December is just about over, and so is 2022. Whether this year has been good or bad for you – or a bit of a mixed bag – you still have a little time to do some tax-related strategizing in order to reduce the amount you’ll be sending to Uncle Sam come April 15 th. Think of it as a last-minute gift for yourself.

For some year-end tax-reduction suggestions, we turn to reporter Richard Eisenberg writing for NextAvenueEisenberg is a financial writer and author, and while some of his suggestions could be more applicable to you than others, we hope this article prompts you to give some thought to your tax burden as the old year winds to a close. Let’s take a look and see what Eisenberg recommends.

Still Time to Cut Your Tax Burden for 2022

Eisenberg starts with a sober assessment of the year just ending. “While this has been a pretty miserable year for the stock and bond markets and inflation, it’s a good one for year-end tax cutting,” his NextAvenue article begins. As evidence, he cites   a report by Wolters Kluwer, the international publishing and professional services company, which found that “the tax world has largely stabilized since the passage of the Tax Cuts and Jobs Act in 2017. This has made year-end planning more predictable.”

What’s more, Eisenberg adds, the end of the year is “just a natural time to pause and just assess and review everything, taxes included.” With that in mind, he offers some suggestions to trim your 2022 tax bill. Of course, he warns, don’t take any drastic action before sitting down with your tax adviser or financial planner.

Start by Figuring Out Your Tax Brackets

Are your financial circumstances changing in the year ahead? If so, your tax burden will be affected. “You’ll want to first estimate your tax bracket for 2022 and 2023 so you can see which year it’ll likely be higher and then make tax moves accordingly,” Eisenberg advises. “For example, if you expect to be in a higher tax bracket in 2023, you may want to try pushing anticipated 2023 income into 2022 and postpone making some tax-deductible expenses until next year, when they’ll be more valuable to you.”

The opposite is also true. “Conversely,” he writes, “if you think you’ll be in a lower tax bracket next year, you may want to do the reverse — push anticipated 2022 income into 2023 and pay tax-deductible expenses this year, when they’ll be worth more to you.”

As you plan, says the article, remember to account for adjustments due to high inflation. With inflation so high, says Eisenberg, the Internal Revenue Service (IRS) announced a 7 percent inflation adjustment to the 2023 income tax thresholds. He calls this “one of only two good things due to high inflation; the other is the 8.7 percent Social Security cost-of-living adjustment in 2023.”

The bottom line is that, if your income will be the same in 2023 as in 2022, “you may be in a lower tax bracket next year because of the inflation adjustment. For example, a married couple with $85,000 in income will be in the 22 percent tax bracket this year, but just the 12 percent bracket next year.” This could be very good news for those on fixed income.

Consider Tax Deductions and Tax Credits

The rules on itemization have changed drastically with the hike in the standard deduction, Eisenberg reminds us. “Before looking for last-minute deductible expenses for 2022, determine whether you’ll be able to itemize deductions on your tax return,” he writes. “If your deductions wouldn’t exceed $12,000 and you’re single or $25,900 and you’re married, they’d be too low to claim.”

For those who will be able to itemize, Eisenberg suggests you consider “prepaying 2023 property taxes and state and local income taxes, which have a $10,000 limit. You could look into paying unreimbursed medical expenses for a write-off, too, though they’re only deductible after exceeding 7.5 percent of your income.”

It might be too late in the year, but there are a few tax credits you still might rush to qualify for. “One example,” says Eisenberg, “is the $2,500 to $7,500 tax credit for buying certain new electric vehicles from manufacturers such as Audi, Chrysler, Ford, Jeep, Nissan and Volvo. There’s also the Lifelong Learning tax credit for educational expenses (maximum credit: $2,000) if your income is under $90,000 and you’re single or below $180,000 and you’re married.”

Add to Your Retirement Plans

Your workplace retirement plan might offer still another tax-reduction opportunity. “If your employer offers a tax-sheltered retirement plan like a 401(k), you still have time to stuff money into it for 2022 and lower your taxable income,” Eisenberg says. “The maximum contribution for 2022 is $20,500, or $27,000 if you’re 50 or older.” These additional contributions can be made all the way until the 2023 income tax filing deadline, but the qualifying account has to have been opened prior to December 31 of this year.

Investment Losses Can Mean Tax Savings

The stock market has been a true mixed bag this year but overall performance has been lackluster at best. “Many investors lost money in stocks, bonds, mutual funds and exchange-traded funds (ETFs) this year,” Eisenberg observes. “If you sold holdings for a loss, you could offset the loss against capital gains on investments you sold at a profit. Up to $3,000 in losses exceeding gains can be claimed to lower your 2022 income.”

Remember, too, that buying into a mutual fund at the wrong time can cause your tax bill to take a hit. “This is the time of the year when some mutual funds and ETFs have capital gains distributions — taxes owed on profits taken,” says the NextAvenue article. “You can find the date of planned distributions on a fund’s website or, for big fund companies such as Fidelity, T. Rowe Price and Vanguard, or on the Morningstar site.

Financial author Terry Savage told Eisenberg, “Don’t buy a fund the week before it issues a capital gains distribution because then you’re going to be taxed on the distribution.”

Gifts to Family or Charity

“If you plan to make a gift to a child or grandchild before year’s end, remember that you’re allowed to give up to $16,000 per person in 2022 ($32,000 for couples) without owing gift taxes,” says Eisenberg. “Putting money into a child’s 529 college savings plan will lower your state taxes if you live in one of these 30 states.” (Note that Washington State, home of AgingOptions, offers a 529 plan but does not have a state income tax.)

What about donations to non-profits? There’s a strategy here, too, says Eisenberg. “Since it’s so hard to have enough deductions to itemize, if you want to write off charitable contributions, you may want to try bunching them,” he writes. “That means doubling up this year the amount of donations you’d otherwise make in 2022 and 2023 combined so their total in ’22 will exceed the standard deduction and qualify for an itemized deduction.”

My Life, My Plan, My Way: Get Started on the Path to Retirement Success

At AgingOptions we believe the key to a secure retirement is the right retirement plan – yet statistics show that 70 percent of retirement plans fail. That’s why for nearly two decades we’ve been dedicated to the proposition that a carefully-crafted, fully comprehensive retirement plan is the best answer to virtually any contingency life may throw your way as you age.  Our slogan says it all: My Life, My Plan, My Way.

When it comes to retirement planning, most people focus on one fairly narrow issue: money. Financial planning is an important component of retirement planning. However, people heading towards retirement often make the mistake of thinking that a little financial planning is all that’s required, when in fact most financial plans are woefully inadequate. What about your medical coverage? What if you have to make a change in your housing status – will that knock your financial plan off course? Are you adequately prepared legally for the realities of retirement and estate planning? And is your family equipped to support your plans for the future as you age?

The best way we know of to successfully blend all these elements together – finance, medical, housing, legal and family – is with a LifePlan from AgingOptions. Thousands of people have discovered the power of LifePlanning and we encourage you to the same. Simply visit our website and discover a world of retirement planning resources.  Make certain your retirement planning is truly comprehensive and complete with an AgingOptions LifePlan.  Age on!

(originally reported at www.nextavenue.org)

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