Knocking a few items off your to-do list at the end of the year may save you a good chunk of money once spring rolls around. There are a handful of strategies that can help lower your tax obligation, and there are plenty of other scenarios to review if you want to avoid surprises in the new year!
End-of-Year Tax Checklist
Most of us have a lot on our plate during the last weeks of the year; and although certain actions for your finances, like adjusting your paycheck withholdings, may not be all that beneficial, there is one quick change that many taxpayers can explore.
For example, when you already have a retirement account set up, you don’t want to ignore the chance to max out your annual contributions. It’s not just a benefit for your future. You could also lower your tax bill for the current year.
If you have a 401(k) plan offered through your employer, the 2022 tax code allows you to defer up to $20,500 of your salary into your account. Individuals age 50 and older can even add another $6,500 to that amount.
There could be additional end-of-year tax savings opportunities for business owners too. If you acquired business property during the year, consider your options for writing off that cost. The most recent tax laws allow you to utilize this strategy when you have placed the property in service within the first year. While this might only apply to a small percentage of taxpayers, it’s still definitely something to look into with your business accountant.
Watch Out for Potential Tax Surprises
Reflecting on another couple of tax situations at the end of the year can also help put yourself in a better financial situation. Have you overlooked any one-time events that could potentially be taxable? Your liability for 2022 could be affected after winning a prize raffle, such as during a fundraiser for your church. Or a child’s birthday this past year could mean that you’re losing a dependent on your tax return. Checking your records now will help ensure that you will be prepared for any shifts in your tax obligation.
Another piece of the puzzle is whether you are accounting for gig taxes. Working as an Uber or Lyft driver, for example, will generally mean that all of your income will be taxable. Even though you’re aligned with a national company, you are essentially being viewed as a self-employed individual. This often requires you to pay estimated quarterly taxes. Overlooking these due dates could result in a penalty being applied to what you owe when you file.
Got Something Else on Your Mind?
The holiday season and end of the year is a great time to unwind with friends and family. But marking a few more tasks off your checklist can help position you for a more successful new year. If you have questions about your tax situation for the current year, please don’t hesitate to reach out to our team. It’s not too late to schedule a tax planning session. The more items we’re able to review now, the better. It’s always nice to have a good idea of what to expect for your tax obligation in advance.