Let us face 2023 with prosperity by using innovative strategies for our 2022 tax. We are already feeling the Christmas rush this season, but before we become too immersed in spending and celebrating, let us look at some crucial things involving saving more money with our taxes.
We can feel inflation’s effect on our paychecks more than we care to admit. However, there are things we can still do now to be able to save money for our tax bills this year.
Inform yourself and use these 15 top strategies and tips for your year-end tax.
1. Extended Deadline for 401(k) plans
The deadline for starting 401(k) plans has been extended to the due date of the business tax return for the plan’s first year. The old rule required the plan to be in place by the last day of the tax year.
2. Convert some of your traditional IRA investments to a Roth IRA
Consider this move if you will be in a lower tax bracket than usual in 2022. Suppose you have a particular investment in your traditional IRA that has experienced a significant price decrease this year and feel it will recover. In that case, it may be a good candidate for a Roth conversion. You can cherry-pick specific investments for a Roth conversion.
3. The Child Tax Credit has changed for 2022.
Here is a summary of the changes: The credit is back to $2,000 for each dependent child aged 16 and younger. The credit is only refundable (meaning you get the cash even if you do not have a tax liability) up to $1,500.
Plus, you must earn at least $2,500 to get the refund. The upper-income limits for receiving the credit have increased slightly. The credit starts phasing out for single taxpayers with $200,000 of modified adjusted gross income and $400,000 for taxpayers filing a joint return.
4. For 2022, the upper-income limits for contributing to a Roth IRA have increased.
For single taxpayers, you can make a total Roth IRA contribution if your modified adjusted gross income is less than $129,000. The allowed contribution phases out as one income increases to $144,000, at which point it is fully phased out. The comparable amounts for those filing joint returns are $204,000 to $214,000.
5. Are you a teacher? Are you married to a teacher?
Teachers can deduct up to $300 for classroom supplies paid personally. This deduction can be taken without itemizing other deductions. Two married teachers filing a joint return can deduct up to $600.
6. Delay your income for a bit.
Defer income until 2023 by deferring bonuses. Business owners who file taxes on a cash basis can delay invoicing customers and accelerate payment of expenses.
7. Verify withholding taxes and insurance beneficiaries.
- Verify that your withholding taxes or estimated tax payments will cover 90% or more of your 2022 tax liabilities.
- Verify that your beneficiary designations for your retirement savings accounts and life insurance policies reflect your current wishes and are updated for changes in family circumstances—these designations control who receives these assets, not your will.
8. Cut down on educational costs.
If your income is within the range to utilize higher education tax credits (American Opportunity Credit or Lifetime Learning credit), it is advantageous to prepay tuition due in 2023.
9. Did you turn 72 years old?
If you have turned 72 years old and have an individual retirement account or other retirement plans, you must take the required minimum distributions in 2022.
(RMDs) There is an exception for business retirement plans where you own no more than 5% of the business and continue working as an employee.
10. Are you 70 years old?
People over 70 ½ can make traditional IRA contributions if they earn
income. Roth IRA contributions can be made at any age if you have earned income.
Are you a business owner? Here are more tips for you.
11. Remember, business meals are 100% tax deductible.
For self-employed taxpayers and business owners, business meals (not entertainment) is 100% tax deductible for 2021 and 2022.
Remember that business meals require written documentation (the person provided the meal, the business relationship, place, date two, and amount).
12. Know the bonus tax deduction for purchased business equipment.
Deducting the total cost of business equipment in the year acquired, rather than depreciating over five or more years, has been made easier by liberalized rules for bonus depreciation.
Also, equipment with a cost of $2,500 or less can be currently deducted under the IRS de minimis rule. ($5,000 if the business has audited financial statements) Many
improvements to existing real commercial property qualify for bonus depreciation which is still a 100% immediate deduction for 2022.
13.20% Tax deduction for “Qualified Business Income.”
C corporations have a flat 21% federal tax rate. However, businesses that are not C corporations, such as LLCs, partnerships, and S corporations, allow owners to take a 20% deduction of “Qualified Business Income.” There are many rules and limitations involved, but, as a rule, the deduction is 20% of the business’s net income.
14. Are you a homeowner?
Pay your January 2023 mortgage payment in December 2022 if you know you will have enough itemized deductions to exceed the standard deduction for 2022.
15. Consider giving generous gifts.
If you plan on making gifts to reduce your assets subject to estate tax, make annual exclusion gifts of up to $16,000 by year-end. Gift-splitting with your spouse doubles the exempt gift amount. (In 2023, the gift tax exemption will be $17,000.)
Greet 2023 with a Peaceful Mind and Fuller Pockets
Apply the tax strategies suitable for you. Asses and evaluate how you are doing in terms of your 2022 tax situation. You must understand that your 2022 tax situation will dictate your 2023 finances as well.
It is always possible to be proactive in tax planning and even ask professional advice from professionals such as a good certified public accountant in your area.
Plan ahead always and let 2023 be yours for the taking.