Make These 6 Year-End Tax Moves Right Now Before 2023 Arrives
With so much end-of-year focus on the holidays, it’s easy to overlook the financial gifts you can give yourself by making the right year-end tax moves. Making those moves now, before the clock strikes 2023, can help lower your tax burden when tax season actually rolls around.
Some moves are simple enough, such as charitable donations that can be deducted from your 2022 tax returns. Others might take a little more work, like reviewing your 2022 tax withholding to make sure you contributed enough to avoid a big tax bill when you file next year.
The following describes six tax moves you should make right now:
1. Maximize Your 401(k) Contribution
Upping your 401(k) contribution might be a challenge in a year of soaring inflation, but it’s still one of the best moves you can make at the end of the year. Doing so bolsters your tax-deferred retirement savings and gives you a chance at more free money through employer matches. TurboTax recommends putting the maximum amount of money into your 401(k) before the end of the year. The contribution limit for 2022 is $20,500 for those under 50 and $27,000 for those 50 and over who are allowed catch-up contributions.
2. Review the Tax Withholding on Your Paychecks
This is especially important if you had major employment or life changes such as a pay raise, change in marital status, new child or new home, Forbes reported. You want to make sure you have the right amount of taxes taken out of your paycheck. If not enough is withheld, you might owe taxes when you file. Withholding too much means you might not see it until you get a tax refund, when it might have been put to better use through investments or savings that allow it to grow. Use the IRS tax withholding estimator to see whether your withholding is the right amount.
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3. Cash in Investment Losses
If your stocks have taken a beating this year, one way to recapture some of those losses is through “tax-loss harvesting.” This basically means selling investments at a loss and then subtracting that loss from any capital gains you had from selling other investments, CNBC reported. When your losses exceed your gains, you can deduct up to $3,000 a year from your regular income and carry forward any extra losses indefinitely.
4. Defer Your Income
If you are self-employed, a freelancer, private contractor or independent consultant, you know that income is taxed in the year it is received. Deferring that income into the next year also defers the tax you have to pay on it. Consider remitting your final bills or invoices in late December 2022 to ensure that the payments don’t arrive until 2023 — which pushes back your tax obligation another full year. Even if you work for an employer and have taxes deducted from your paycheck, you can request that year-end bonuses be deferred until early 2023 if that’s something your employer does.
5. Donate to Charity
This is not just good for the soul, it’s also good on the wallet since donations can be deducted from your taxes. As Forbes noted, you typically need to itemize your deductions to claim charitable donations, and your total deductions must exceed your standard deduction amount in order to itemize. Standard deductions for the 2022 tax year are as follows:
- $12,950 for single and married-filing-separately taxpayers
- $19,400 for head of household taxpayers
- $25,900 for married-filing-jointly or qualifying widow(er) taxpayers
See: 10 Brilliant Ways To Reduce Your Taxes in Retirement
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Make sure your favorite charity qualifies for tax-deductible donations by checking the IRS’ Tax Exempt Organization Search Tool.
6. Review Your Flexible Spending Accounts
If you have a flexible spending account (FSA) through your employer, check to see if your employer has adopted an IRS-approved grace period that lets employees spend 2022 set-aside money as late as March 15, 2023. If not, zero the balance out before the end of the year to ensure you don’t leave money on the table. This typically involves making last-minute trips to the pharmacy, dentist or optometrist to exhaust the funds in the FSA.
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