4 Last-Minute Tax Saving Strategies to Use Before December 31
It's time to start thinking about year-end tax planning as 2022 draws to a close and to start taking the essential steps to lessen your tax burden. Year-end tax preparation is the activity of maximizing whatever tax credits and deductions you may be entitled to while attempting to minimize tax penalties. The right techniques can help you free up money for your personal or professional life. These acts can be taken at any time of the year, but taxpayers can take a few last-minute measures to improve their tax situation.
1. Tax deductions for income
When it comes time to file taxes, deductions for income tax can be collected during the year and written off. Here are a few last-minute tax deductions to consider:
Contributions to charities
Dental and medical costs (if exceeding a percentage of your income)
Mortgage interest that qualifies
2. Put off your paycheck
Income is subject to taxation in the year it is earned, but why pay taxes now when you may pay them later? Employees find it difficult to put off receiving their wages and salaries, but if your company has a policy of paying year-end bonuses the following year, you might be able to do so. You have more latitude if you operate for yourself, are a freelancer, or provide consulting services. For instance, delaying billings until late December can guarantee that you won't get paid until the next year. You can postpone income regardless of whether you are employed or self-employed by taking capital gains in 2023 rather than in 2022. Deferring income only makes sense, of course, if you anticipate being in the same or a lower tax band the following year. If increased income could put you in a higher tax rate, you don't want to be slapped with a greater tax payment the following year. If that's probable, you might seek to accelerate your income into 2022 so you can pay tax on it sooner rather than later at a lower bracket.
3. Add money to your IRA.
Tax deductions may be available for contributions made to a conventional individual retirement account in the year they are made. Different IRS regulations regarding IRA contributions apply in different circumstances. However, If you and your spouse don't have access to workplace retirement plans, you can typically deduct the whole amount of an IRA contribution. Depending on your adjusted gross income, your contribution may be restricted if both you and your spouse are covered.
For instance, if you pay the maximum $6,000 deductible contribution allowed for 2022 and your tax rate is the highest 37%, you might save up to $2,220 in taxes. The best part is that you can contribute to most tax-saving strategies even if they don't have to be in place by December 31.
4. Utilize all of your flexible spending options.
Your employer establishes a Flexible Spending Account (FSA), putting money from your income into a separate account to be used for medical costs. The funds in your account can be utilized to reduce your taxable income and are tax-deferred. Make sure to schedule as many appointments and check-ups by the end of the year as necessary to use up every bit that you can, as you will be taxed on any amount in your account that is still in existence as of December 31. Funds from FSAs do not roll over to subsequent years, in contrast to HSAs.
You can request a year-end tax prediction from a CPA or other certified financial advisor, such as Kotini & Kotini. Even though it's the most expensive choice, this is one of the easiest ways to achieve the finest outcomes. The most correct information and sane suggestions regarding any choices you have to enhance your tax situation are likely to be provided to you.