As 2021 comes to a close, it’s time to start thinking about your 2022 tax bill. 2021 may have brought you a job change, income difference, new expenses, investment changes, or more. You want to start early to minimize your taxes the best you can. Continue reading for moves to make to lower your 2022 tax bill.
- Take a Few Last-Minute Deductions
There are several last-minute deductions that you can take advantage of before 2021 ends. One deduction is donating cash to charity. For 2021, you can deduct $600 per tax return for married joint filers and $300 for other filing statuses. You will need to have proof of donation to receive this deduction. A few other expense deductions you could receive include a state income tax bill due January 15th, 2022, a property tax bill due early next year, and hospital bills.
- Sell Bad Investments to Offset Profits
Try out “loss harvesting”, selling off stock and mutual fund investments to realize losses. You can then use the loss to offset any taxable gains you’ve had from selling investments during 2021. If your losses are more than your gains, you are able to use up to $3,000 of excess loss to offset other income. If you have more than $3,000 in excess losses, you can carry it over to 2022.
- Maximize Retirement Account Contributions
Tax-deferred retirement accounts are an excellent investment and tax deduction. Try to reach the maximum 401(k) contribution, which is $19,500 for 2021 and $26,000 if you are 50 years old or older. If you cannot reach the maximum contribution, aim for the maximum amount that your employer will match if it is an employed sponsored 401(k).
Also, look into contributing to an IRA account. The deadline for IRA contributions is April 18th, 2022, so if you do not have enough income to do it before the end of the year, you have time and money to contribute before the deadline. Your IRA contributions lower your taxable income, reducing your tax burden. You are allowed to contribute up to $6,000 to an IRA for the 2021 tax year, with a $1,000 if you are age 50 or older.
- Look at Your Flexible Spending Accounts
If you have Flexible Spending Accounts, they are subject to the “use it or lose it” rule. If there is still money left in the account by the end of the year, it doesn’t rollover. Check with your employer that there is a grace period that allows employees to spend 2021 FSA funds as late as March 15, 2022. If a grace period is unavailable, try to make a few doctor’s appointments or trips to the drug store to use up your FSA funds before they expire.
- Defer Your Income
It can be difficult to defer any wage and salary income, but if you receive a year-end bonus, you may be able to postpone it to 2022 taxable income. Another way to defer income is to delay capital gains in 2022 instead of 2021. It makes the most sense to defer income if you will be in the same or lower tax bracket in 2022.
If you need help finding last-minute tax savings, contact us at FP Wealth Management. Our advisors can assist you in finding the best ways to lower your 2022 tax bill. Contact us today to get started!