Setting aside a little time for reflection at the end of the year is great for our mental, emotional, and even financial wellbeing. Running the numbers now and getting a few items in order can help put yourself ahead of the game come tax-time!
Smart EOY Ways to Prep Your Taxes
Although the official tax season may still be months away, some aspects of your tax planning should be top-of-mind this time of year. Even a quick review of your current tax situation can help you secure significant savings on your return.
1. Follow Through on Your Required Minimum Distributions
Individuals aged 72 and older need to take the required minimum distributions (RMDs) before December 31 to avoid serious penalties. Most 401(k) and IRA accounts (except for Roth IRAs) have a 50% penalty applied when the annual minimum distributions aren’t met.
2. Secure Your Identity Protection PIN
Taxpayers who have been victims of tax-related identity theft in the past will want to watch out for a particular piece of mail from the IRS. Your identity protection personal identification number (IP PIN) operates as a security measure to help ensure that your tax return and any refunds will be handled without a hitch, remain in your name, and be connected with your actual bank accounts. The IRS typically mails these one-time use PINs between mid-December and early January.
3. Maximize Contributions to Your Retirement Accounts
It’s important to remember that you may not need to go to the trouble of itemizing your deductions to reduce your tax liability. Some taxpayers are able to make last-minute contributions to tax-advantaged retirement accounts—such as their 401(k) or a traditional IRA—to lower their tax bill when it’s time to file.
4. Review the Gains and Losses of Your Investments
Making plans to sell stocks in a loss position works to offset the capital gains you may be expecting from your investments. If you’re looking to lower your tax liability for the year, you might be able to reduce your ordinary income by claiming excess losses by as much as $3,000. This type of tax strategy can be rather advantageous when you’re anticipating a jump in your income taxes.
5. Consider Your Other EOY Tax Moves
Applying a few other tactics could potentially reduce your tax liability even more. Making qualified charity donations at the end of the year can help some taxpayers maximize their itemized deductions. Another option is to utilize the 2022 IRS gift-giving limit of $16,000 (or $32,000 if married filing jointly).
For small business owners, the simplest final tax move is to reduce your 2022 income. You can do this by delaying receipt of any customer or client payments from 2022 into 2023. Or you can accelerate expenditures that you were initially planning for 2023. Just make those purchases now to help lower your taxes due for 2022!
We Are Here to Help
Gaining new clarity surrounding your current tax liabilities can help give you more peace of mind and confidence as you enter the new year. Please don’t hesitate to contact our team so we can take a look at your situation to-date. Then we’ll be able to discuss your options to help maximize your potential year-end tax savings and keep more money in your pocket this coming spring. NSO & Company is here to help!