If you’ve put off your tax planning and are looking for some quick end-of-year tax deductions, don’t worry, you’re not alone. Millions of Americans are in the same position as you! In order to help you reduce your tax liability and keep more of your hard-earned money in your pocket, we’ve assembled a list of some of the best (and easiest) tax tips to quickly reduce your tax burden for next year!
For those that haven’t maximized their 401k and IRA contributions for 2022, don’t wait around any longer! Be sure that you’re taking full advantage of your tax-advantaged retirement accounts. In 2022, you can contribute up to $20,500 to an employer-sponsored 401k account and $6,000 to an IRA ($7,000 for people over 50).
If you’ve only got enough cash to set aside money in one account before the end of the year, you might want to consider prioritizing your 401k. The deadline for 2022 401k contributions is December 31, but you can contribute to an IRA for the 2022 year up until April 18, 2023!
If you have a business and you’re trying to avoid a hefty tax bill this year, now might be the time to make some business purchases that you’ve been putting off for a while. Even if you wait until the last week of the year, you’ll still be able to deduct the full value of your purchase in many cases. So, now might be a great time to look at your business’ yearly financials and determine whether or not it’s time to make that purchase you’ve been pushing to the wayside.
It is important to note that when you make a business purchase, you’re deducting the expense, not getting credit for it. Remember that deductions reduce the income of your business, whereas credits are a dollar-for-dollar reduction of your business’s taxable income.
If you haven’t already maximized your HSA contributions, now is probably a good time to do so. Unlike FSAs, HSAs allow you to roll unused funds into the following year. This makes HSAs a great tax-advantaged way to save for both medical expenses and retirement! Remember – after age 65, you can withdraw funds from an HSA for any reason. So, if you’ve got money left over in your HSA when you retire, you can use it to supplement your other retirement income!
Unfortunately, HSAs are only available for some people though. To contribute to an HSA, you must have a qualifying High Deductible Health Plan. There are some financial risks that come along with having an HDHP, especially for those who frequently go to the doctor or require regular medical treatment, so consult with a trusted financial professional before making any changes to your health insurance plan!
This year has been a tough year in the stock market, making it a great year to do some tax loss harvesting! For those who are unaware, tax loss harvesting is when you sell some of your losing positions to offset any realized gains you may have. So if you have some losing positions, now might be a great time to exit them (along with any big winners that you don’t want to hold anymore).
Did you realize more losers than winners this year? Don’t worry. When it comes to stock losses, if you realized a net loss, you could write off up to $3,000 that net loss and carry forward any excess losses. As of now, there is no cap on how far into the future these losses can be carried. This means you may be able to benefit from this year’s tax loss for years to come!
If you’re feeling charitable during the holiday season, there’s no better time to contribute to your favorite charitable organization! Doing so will not only help out the charity, but if you itemize your deductions, you’ll be able to write off the contribution as well. Just be sure to get the proper documentation for your donation. In the event of an audit, you will likely be required to show proof of your donation. Don’t worry, though. Most charitable organizations are familiar with the documentation process and should have no problem providing you with the necessary paperwork.
While this isn’t necessarily a tip that will help you reduce your tax burden, it’s certainly something you should do before the end of the year. Each year, both employers and employees make contributions to Flexible Spending Accounts that go unused. Unlike funds in an HSA, funds in an FSA are “use it or lose it,” meaning if you don’t use your FSA funds in a given year, you can’t roll them over to the next year.
To ensure you’re not leaving money on the table with your FSA, make sure you don’t have any money left over at some point in the next couple of weeks. If you have some money left over, be sure to spend it! Sites like Amazon make spending FSA money easy, as they have an entire category of FSA-eligible items!
If you aren’t already doing so, working with a CPA to file your taxes and plan your tax strategy can save you substantially more than their costs. CPAs can help you find deductions that you or your online tax filing software probably miss. Additionally, meeting with your CPA for regular planning sessions will help you develop an excellent tax strategy, and considerably decrease your tax liabilities.
If you are looking for a great CPA in the Milwaukee area, look no further than D&M Accounting Services. Our knowledgeable staff has collective decades of experience in tax preparation or planning. If you would like to schedule a consultation with one of our representatives, call 262-253-9955 or visit our website today!