There is still time to review your taxes before the end of the year, but you must move quickly. Take the time now to consider tax-saving measures so you can maximize your tax refund in April. It is recommended that your tax preparations be complete by December 31st to impact your 2023 tax return.
The professional accounting service team at Waters Hardy knows how important it is to end the year with a thorough tax assessment. Contact us to learn more about how our expert accountants can assist with all your tax planning needs . Reviewing everything from personal accounting to tax compliance, we can work quickly to minimize your tax bill and maximize your refund.
Here is some end-of-year tax advice, including tax planning techniques to consider before the December 31st deadline.
Double-Check Your Paycheck for Tax Withholding
Your W-4 tax form includes information about your filing status and estimated tax deductions. Your employer uses this to calculate the amount withheld from your paycheck. Failure to pay enough taxes during the year can result in a penalty, so this is worth double-checking. You can review your W-4 form anytime, and the end of the year is an optimal time to decide if you want to make any changes to your filing status.
Sell Stocks to Offset Capital Gains
Any income received through the sale of assets is referred to as capital gain. This includes selling stocks, real estate, cars, furnishings, or other tangible properties. With the stock market down more than 20% this year, company price increases have been few. Luckily, there is a tax strategy that works great in this situation. All potential stock losses you anticipate can be prevented by selling stocks or other assets that have dropped value to offset other capital gains you may have earned.
Max Out Retirement Account Contributions
Making the most contribution to 401 (k)s and IRAs in the final pay period of 2022 is an effective tax deduction strategy that can lower your tax burden while retaining the benefit of saving for the future. If you can afford it, max out your possible contributions to any retirement account before the end of the year.
Additionally, if you’re over 50 and permitted by your 401 (k) plan, you can contribute more with “catch-up” contributions totaling $6,500 per year. The deduction cap for 401 (k) contributions for 2022 is $20,500, which does not include employers’ contributions.
For IRAs, the maximum amount of tax-deductible contributions for 2022 is $6,000, or $7,000 if you are over 50.
Make Your Home Energy Efficient
Tax deductions have a minor effect on your tax bill than tax credits. Tax credits automatically cut the amount of taxes you owe, whereas deductions only affect your level of taxable income. There are several reasons to make your home “greener,” and the number of tax credits you can receive for improving your home’s energy efficiency is just one option. For the 2022 tax year, you can receive a 26% credit if you install a solar energy system, wind turbine, or geothermal heat pump before January 1, 2023. This credit will drop to 22% next tax year.
Consider Deferring End-of-Year Bonuses and Payments
Any payment you can delay until after January 1, 2023, will reduce your taxable income for 2022. If delayed, you’ll pay taxes on the money in 2023. Therefore, you’ll need to decide whether it’s worth deferring this year or waiting until next year.
Complete All Charitable Contributions
Lower your taxable income for 2022 by making financial contributions to the causes and organizations you support and itemize your deductions before the end of the year. For most taxpayers, up to 50% of taxable income is often allowed as a charitable deduction.
Charitable Deduction Changes
In response to the Covid-19 pandemic, Congress boosted charities in 2020 by offering a tax incentive for cash gifts. This tax break was extended for 2021, allowing taxpayers to claim cash donations regardless of whether they itemized deductions. This tax break was not extended for 2022. So, that means if you take the standard deduction, there’s no longer a benefit for charitable gifts.
Check Your Required Minimum Distributions from Retirement Accounts
Federal tax law requires that contributors begin receiving distributions from their own or employer-sponsored retirement savings when they reach a specific age. Taxpayers paying into 401 (k) plans, regular IRAs, profit-sharing programs, and pensions should check minimum distribution requirements before the year ends.
Combine All Medical Expenses Into One Year
The IRS permits you to claim tax credits for medical costs that exceed 7.5% of your adjusted gross income. To make a sizable tax deduction possible, it may be a good idea to consolidate all your high medical costs into a single year. Medical procedures, routine maintenance, hospital visits, dental work, prescription medication, eyeglasses, hearing aids, therapy for mental health issues, and travel charges to and from the providers, are included.
Strategize Your Business Expenses
Deducting your company expenditures if you’re self-employed or a freelancer can significantly reduce your tax liability for 2022. Depending on how much you’ve spent on your professional work this year, you can consider paying for next year’s expenses in advance to lessen your tax burden.
End-of-Year Tax Expertise with Waters Hardy
Saving for retirement, itemizing deductions, or holding investments outside of a retirement account can make a difference in your tax return. Additionally, financial decisions to be made before the end of the year can significantly affect how much tax you must pay in April. There is no one-size-fits-all approach to tax preparation. Consulting professional tax and accounting service teams is sure to ensure your tax plan is developed with your needs in mind.
Waters Hardy has the tax team you need to guarantee the best possible refund in 2023. We are experienced in strategic tax planning and compliance and ready to help you end the year strongly and confidently.