tax planning

2022 Year-End Tax Planning Tips

Picture of By: Shannon McNulty, Attorney, The Village Law Firm

By: Shannon McNulty, Attorney, The Village Law Firm

Shannon's work is sophisticated and reflects her deep knowledge of the laws governing estates, taxation and child guardianship issues. Shannon approaches each client with sensitivity and compassion, understanding that many of the decisions that they will have to make can be difficult.

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As the year comes to an end, now is the time to make any last-minute adjustments to reduce any potential tax liabilities.  Here are some strategies that may help you reduce or defer certain tax obligations for the 2022 tax year.

Optimize Investment Losses

This year was a challenging time for the market, and financial experts are predicting more uncertainty in the months ahead. The good news is there’s still time to make lemonade out of lemons and harvest tax losses, which can offset current or future gains. Investment losses can be used to offset capital gains in 2022, plus up to $3,000 of ordinary income. You can sell any depreciated securities that no longer fit your long-term strategy, have poor prospects for future growth, or can be replaced with better investments. You can also sell long term investments to trigger the tax and then purchase them again – just don’t repurchase the same security within 30 days or the IRS will disregard the loss.

Last-Minute Charity Donations

You may be able to lower your 2022 tax bill by donating to a charity by December 31st. Consider “bunching” charitable donations into 2 or more years’ worth of contributions. This can increase the deduction you can take against your income. Consider donating appreciated assets like stock rather than cash. If you’ve owned the asset for more than one year, you’ll get a double tax benefit from the donation: you’ll get a deduction for the full market value of the asset, and you won’t have to pay capital gains tax on the appreciation.

Retirement Account Contribution

Make sure you contribute to retirement or health savings accounts to take advantage of their tax-deferral benefits, and increase the assets you have for future retirement and medical expenses. These investments will grow tax-free over time.

If it fits into your budget, contribute the maximum amount allowed to your 401(k) account. The maximum amount for 2022 is $20,500, or $27,000 if you’re 50 or older.

If you have an IRA or Roth IRA you can contribute a maximum of $6,000 for 2022, plus an extra $1,000 if you are 50 or older. A stay-at-home parent may be able to contribute to an IRA as well, even if they didn’t earn compensation. For more specific information, check the IRS website or talk to your accountant.

Flexible Spending Accounts

If you have a Flexible Spending Account (FSA), check to see if there are any remaining funds. If funds aren’t used by the deadline, they’ll be forfeited unless your employer has an IRS-approved grace period. Otherwise, you can use the funds last-minute for healthcare, childcare or eldercare expenses.

Required Minimum Distributions

If you’re required to take required minimum distributions (RMD), make sure to take them before year end. Late withdrawals can result in hefty penalties.

Gifting Deductions

If you are in position to give money away, consider making cash gifts to your kids, nieces, nephews, or grandchildren. For 2022, you can give up to $16,000 per beneficiary without filing a gift tax return and without it affecting your lifetime exemption. The recipient of your gift also isn’t taxed.

Contribute to a 529 Plan

Have you contributed to your child’s 529 college savings account this year? If not, you may want to contribute before year end. Contributions to a New York State 529 plan are deductible against New York State income taxes up to $5,000 per year (per contributor). Money invested in the 529 plan can be withdrawn free of federal or state tax if used for higher education expenses. You can contribute to an account for a beneficiary of any age.

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