Year-End Tax Tips

By: Brandon Clark, CPA

Tax planning season is upon us! Don’t wait until next April when your tax return is prepared to think of tax moves. Now is the time you can make an impact before the tax year ends!

Please keep in mind that these strategies are not tax advice. You should run any of these strategies by your tax professional to ensure they’re right for you before implementing. 

Charitable giving: Donations must be made by December 31, 2022 to count for the tax year! Here are 3 more creative ways you can give that will help your finances

  1. Qualified charitable distributions: If you’re 70.5 or older, you can give directly from your pre-tax retirement accounts (IRAs, 401k, etc.). You also won’t need to pay taxes on this money!
  2. Gifting of appreciated securities: When you give appreciated securities you get a deduction on your taxes, AND you also get to avoid recognizing that capital gain. So its a double win! If you have non-retirement accounts that have been open for some time you’re bound to have accumulated capital gains. Many charities accept securities these days, so just ask!
  3. Bunching: Fewer and fewer people are itemizing deductions on their taxes these days which has decreased the impact charitable giving has on lowering taxes. For those who give significant amounts annually (around $10k or more) one way to regain that benefit is by bunching charitable gifts. With this strategy you bunch 2 years’ worth of giving into a tax year every couple of years so that you have enough donations to itemize. 

Retirement contributions: Here are few things to consider around retirement contributions: 

    • Consider notching up contributions by 1% each year. Why? It’s a tiny increase that you won’t feel, especially with a year-end raise. It’s a small change but it really adds up over time. 
    • Already maxing out? Workplace plan (401k, 403b, TSP, 457b) contribution limits increased in 2022 to $20,500 and will increase again in 2023 to $22,500
    • For those 50 and over the additional catch-up contribution also increased to $6,500. And will increase again in 2023 to $7,500.
    • If you are a Federal Employee, be aware that maxing out your TSP must be done carefully in order to preserve your full 5% match. For most people that means setting a dollar amount to be contributed from each paycheck to be sure you don’t hit the maximum earlier than year-end. 

Health Savings Accounts (HSA): For those with High Deductible Health Plans, consider maxing out your HSA contribution.

    • Contributions are allowed until April 15, 2023 for the 2022 tax year and limits for 2022 are $3,650 for self-only and $7,300 for families. 

Business Owners: Be strategic with business income and deductions, especially if you file on the cash method (most small businesses do).

If you’ve had a good year- lower your taxable income for the year. Both of these tactics will help lower your profit:

1.) Move big expenses forward from 2023 into December.

2.) Delay income by pushing out invoicing and payment terms to January.

If you expect taxable income to be higher in 2024, however – you want to take advantage of the lower tax rates available to you this year. These tactics will help move taxes in 2022 so you’re paying tax “on sale”: 

1.) Delay significant expenses until next year.

2.) Move invoicing and payment terms forward to December. This helps to increase your profit in 2022 when taxes are lower.

Gifts: Gifting appreciated securities to children and other loved ones in lieu of cash gifts can be a great strategy for some. 

You can give any person a gift of $16,000 each year without having to worry about taxes or gift tax filings. That means a married couple can give a total of $32,000 to any one person. This limit applies to 529 plan contributions, securities, or gifts of property. Any gifts for 2022 have to occur by 12/31/2022.

Schedule with us if you want to understand which of these strategies might help you! We can help you wade through the tax laws in light of your individual circumstances, and work together with your CPA on the smartest tax strategies for you.