When scrolling my social feeds, if I come across a Christmas countdown post, I sometimes have to purposefully slow my breathing. For Chattanooga tax and financial pros like me, this season also shouts: deadlines, deadlines, deadlines. Also, yes … happy holiday things too.
Also … deadlines.
So forgive me if I interrupt what (for many) is a sweet, tinsel-tinged season with my cue as your friendly neighborhood tax professional to say… 2022’s almost up.
We care about year-end tax moves so much because we don’t want you to miss out… especially when it only takes a little bit of effort to make those moves and end up *ideally* paying less taxes.
Now, before you shrug your shoulders and think I’ll do it next year… know this: There are still tax opportunities you can take advantage of RIGHT NOW – and they don’t take that much work to implement.
There are at least SIX moves that could mean paying less taxes, in fact. I’ll discuss these more below.
But first… did you start some online hobby sales this year (in the amount of $600 or more) and take payments through a digital platform like PayPal or CashApp? Well, get ready for things to get … interesting … in your tax reporting.
The time has finally arrived for the new form 1099s to hit your mailbox. If you weren’t in the habit of reporting your Chattanooga side gig because you pulled in less than a certain amount previously, you’ll need to rethink things when preparing your taxes in 2023.
Now, let’s look through that 2022 last-minute tax moves list…
King’s Year-End Guide to Paying Less Taxes
“Better three hours too soon, than one minute too late.” – Shakespeare
By this point in December, you’ve probably heard a lot about end-of-year tax moves. Maybe you did a few already, and that’s great (hope we could help) but maybe others you just had to file under I’ll be sure to do that next year — it’s too late now.
Believe it or not, there are still very last-minute moves you can make to better your tax situation in 2022 (and by that I mean paying less taxes).
Six extremely last-minute tax moves
#1 – Check that address. Before January, double-check that your bank, investment house, and even your boss have your current mailing and email address. It might sound like a borderline waste of time, but checking doesn’t take long — and you do not want to close in on next Tax Day missing a key 2022 form because somebody didn’t know where to mail it or how to tell you that it’s ready online.
(By the way, it’s not so much a tax concern, but if you have health insurance through the marketplace, you only have a few days left to update your income for 2023, if necessary. This makes sure you get the premium subsidies you have coming to you — and that you don’t get too many that you’ll have to repay later. Check this page from Healthcare.gov.)
#2 – Ballpark imminent taxes. If you’ve got an estimated tax payment coming up in January for the fourth quarter of 2022, do the math now. Remember that for the whole year you’re trying to hit at least 90% of your federal tax for the current year or 100% of your tax shown from the prior year, whichever is smaller. (That figure differs for some industries. And don’t forget about the state taxes.)
If you make enough, you may also have to budget for a 3.8% tax “net investment income” (NII). We can go over the exact number with you. Generally this tax covers interest, dividends, capital gains, and income from passive activities.
#3 – Add to that nest egg. You can put six grand in your IRA for 2022 (one grand more if you’re 50 or older); other retirement plans have their own limits. Even though you have until April’s Tax Day to top off these contributions, you’ll want to be starting on next year’s contributions by then — so why not top off now, even a little, if you haven’t already? You can get a full or partial deduction for your contribution, depending on a few details. Check with us.
You may have also heard about converting to a tax-free Roth. This can be a good idea (especially in a down market, when the value of your current nest egg might incur less tax than in the future). Big catch: Can you swing the upfront taxes on the converted amount? Also, converted funds count as income in that tax year and could bump you into a higher tax bracket — do the math (we can help).
But hold the Roth for five years and your growth and future withdrawals are tax-free if you’re at least 59½ years old, among other benefits.
#4 – Required Minimum Distributions. Finish taking these withdrawals (RMDs) from your retirement accounts for 2022. You may also make a qualified charitable distribution starting at age 70½, an arrangement where an individual can give up to 100 grand from a retirement account directly to a qualified charity — and exclude the money from their gross income for taxes. When you hit 72, these distributions count toward your RMDs. There are certain procedures and details — such as the good idea of completing your QCDs before you take RMDs. But again, check with us, and the clock’s ticking here.
#5 – Estate planning. The estate tax exemption for 2022 is a whisker more than 12 million bucks (next year it’s going to near 13) but barring Congressional action it will drop back to 6 mil, more or less, in 2026. Think about any tinkering soon if your estate is worth more than this.
This year you can also just give 16 grand tax-free to family members that qualify for the annual gift tax exclusion. (The gift tax exclusion goes up $1000 next year.)
#6 – Loss harvesting. Finally, if you had stock losses that outdid your gains, you can use the balance to reduce up to 3 grand of ordinary income for this year and carry remaining amounts forward to reduce taxes in the future — aka tax loss harvesting.
It’s a great tool that can work well — if you have enough gains to offset. You also have to watch out for wash-sale restrictions on buying similar stocks within 30 days.
This season is crazy, we know — but let us help with a few simple tax steps to make 2023 a very happy new year and maybe save you some money on taxes. And of course, if you don’t get to them this year, they’ll be worthwhile to do next year. Buy why wait?
I’m here for all my Chattanooga clients (or future clients?).
Got you covered,
John and Wanda King