Just like that, the end of 2022 is officially here.
That being said, we want you to be fully informed as it pertains to getting all things taxes in order.
Here are Wealth Management Accounting’s end-of-year tax tips for 2022:
The mileage rate changed halfway thru the year from 58.5 cents for the first six months to 62.5 cents for the last 6. So be sure to total mileage separately for each half of the past year.
- Bump in income
If you accumulated significant income, there’s still time to make big purchases or pay expenses that could help with tax liability. Here are two things to think about:
- Buying business assets
First, it would be wise to consult our team before proceeding because not everything is fully deductible. For example, a doctor buying an expensive passenger vehicle as a company car can find the tax deduction limited because the bonus depreciation rules for passenger vehicles are based on the price they paid. Be sure to contact us!
- Are there any expenses that could be prepaid to get liability down?
- Buying business assets
- Do you want to fund a retirement plan?
While many plans allow contributions after the end of the year for the prior year, not all plans do, and there may be steps to take to set it up in time.
- Funding an HSA (Health Savings Account)
If you are in a high-deductible health plan, you may qualify for an HSA. Money contributed is tax deductible, and it rolls over if not used. Money in the account remains tax-free as long as you use it for qualified medical expenses. If you still have the HSA when you retire, you can withdraw money without penalty, and as long as you use it to pay medical expenses, it’s also tax-free. If you use it for non-medical purchases after retirement, it acts like a traditional retirement account, meaning you will treat the distribution as income. The 2022 limit for HSAs is $3650 for self-only and $7300 for families. There’s also a $1000 catch-up contribution for people 55 and over.
- Was there any unusual event that may impact taxes?
No one likes surprises. People often find out they owe a lot more than anticipated because they didn’t find out about the impact of an unusual event. An example would be selling a rental house. Because of things like depreciation recapture, the tax bill can be a lot bigger than expected. Another example would be selling stock or crypto at a significant loss and thinking it is all deductible in that year. There are loss limitations to consider.
- Consider alternating years on large charitable gifts or bunching itemized deductions.
The standard deduction for married couples for the 2022 tax year is $25,900. In order for large charitable gifts and other itemized deductions to be deductible, you have to exceed this threshold on your itemized deductions. This can include medical expenses, certain taxes, mortgage interest, and others. An example would be a couple who gives their church a large gift at the end of the year of $15,000. By waiting until January to gift it, they can push that $15,000. Later that year, when they again gift the church $15,000, they now have $30,000 to deduct in one year. Timing the payments of charity, medical, and taxes can dramatically increase deductions.
- If income is much less than usual, then maybe it’s time to create more income.
This may sound counterproductive, but consider a situation where a person who is generally in the 32% tax bracket has had a bad year and finds themselves in the 12% bracket. This could be an excellent time to convert traditional funds into a Roth or move them to another type of investment.
- Gain and loss harvesting
If income is down, it may also be an excellent time to cash in some stocks that have a lot of gains. If you have a lot of capital gains, then maybe it’s time to dump some losers to offset your gains. Just beware of wash sale rules. If you sell a losing stock and buy it back within 30 days, you cannot deduct the loss.
- Contribute to a 529 plan
There’s no deduction on federal, but several states like Indiana offer a deduction or even a credit. Indiana’s credit is worth up to $1,000, but you must contribute before the year’s end.
(FYI: According to IN rules, it doesn’t have to be a 529 plan you set up. It can be a grandparent contributing to their grandchild’s plan. Please let us know at tax time that that’s what you did.)
- Take any RMDs if you are 72 or older.
Once you turn 72, you must start taking Required Minimum Distributions (RMDs) from certain retirement accounts by April 1st of the following year to avoid penalties.
While we certainly hope this was a helpful resource as you enter into the new year, our door is always open. Don’t hesitate to reach out with any questions.