Before 2022 comes to a close, take some time to review these
essential items to ensure you are not missing something that could cause
tax trouble when you file your tax return:
1. Take required minimum distributions (RMDs). If
you are age 72 or older, you need to take RMDs from certain retirement
accounts before Dec. 31st to avoid a 50% penalty! This includes most IRAs
(except Roth IRAs) and 401(k)s. Your annual RMD is calculated by dividing
the prior Dec. 31st balance by the life expectancy factor provided by IRS
tables.
2. Watch for your Identity Protection PIN from the IRS. If
you are a victim of tax-related identity theft, the IRS will mail you a
one-time use identity protection personal identification number (IP PIN) as
added security. The IRS mails IP PINs between mid-December and early
January, so look for your IP PIN during this time period.
3. Contribute to retirement accounts.
Making contributions to tax-advantaged retirement accounts like a
traditional IRA or 401(k) is a great way to lower your tax liability, even
if you don’t plan to itemize your deductions!
4. Harvest gains & losses. If
you expect to have capital gains from your investments, selling stocks in a
loss position to offset the gains will lower your tax liability. In fact,
you can claim excess losses of up to $3,000 to decrease your ordinary
income, such as wages from your job! Timing matters with investment sales
and income taxes, so having a year-end strategy can help lower your tax
bill.
5. Make last-minute tax moves. Here
are a few ideas worth considering:
- Donate to charity to maximize itemized deductions
- Make a tax-efficient withdrawal from your
retirement account if you are over age 59½
- Take advantage of 2022’s gift-giving limit of
$16,000 per person ($32,000 if married)
- If you own a small business, delay receipt of
income from 2022 into 2023, or accelerate expenses from 2023 into
2022.
Understanding
your current situation and having a plan will help maximize your year-end
tax savings.
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