December 5

4 Year-End Tax-Saving Strategies For 2022

Although the end of the year can be a hectic time, it’s also the deadline for your family to implement a number of key tax-savings strategies. By taking action now, you can significantly reduce your tax bill due in April, but with just a few weeks left in 2022, you better act fast.

While there are dozens of potential tax breaks you may qualify for, here are 4 of the leading moves you can make to save big on your 2022 tax return. However, there may be other opportunities for saving, so meet with us, your Personal Family Lawyer® to make certain you haven’t missed a single one.

1. Maximize retirement account contributions

By maximizing your contributions to tax-deferred retirement accounts, such as IRAs and 401(k)s, you can not only save for retirement, but also reduce your taxable income for 2022.

In 2022, you can contribute up to $6,000 to an IRA and up to $20,500 to a 401(k) if you're under 50, and up to $7,000 to an IRA and $27,000 to a 401(k) for those 50 and older. If you don’t have the cash available to fund the maximum amount, try to contribute at least any amount that will be matched by your employer, since that’s basically free money, and you lose it if you don’t use it.

That said, the ability to deduct your traditional IRA contributions from your taxes comes with certain limitations. These limitations are based on factors, such as whether or not you or your spouse is covered by a retirement plan at work and your adjusted gross income (AGI), so make sure you know how your family is affected by these limits when taking deductions. On the other hand, Roth IRA contributions are not tax deductible, since they are made after taxes are taken out, but withdrawals from a Roth in retirement are tax-free.

Additionally, consider maxing out contributions to your Health Savings Account (HSA). Contributions to HSAs for 2022 are capped at $3,650 for individuals and $7,300 for families, with an additional catch-up contribution of $1,000 allowed for those age 55 and older.

You have until December 31, 2022 to contribute to a 401(k) plan and until April 18, 2023 to contribute to an IRA or HSA for the 2022 tax year.

2. Defer income if you’ll make less next year

If you’re expecting to make significantly more income this year than in 2023, try to defer as much income into next year as possible. However, this strategy only makes sense if you’ll be in the same or a lower tax bracket next year.

This might mean asking your boss to delay paying a year-end bonus until after Jan. 1, 2023, or if you’re self-employed, waiting to invoice certain clients until the new year. On the other hand, if you think you’ll be in a higher tax bracket in 2023, you may want to do the opposite and accelerate income into 2022 to take advantage of a lower tax bracket.

Meet with us, your Personal Family Lawyer® to find out what’s best for your situation.

3. Use “loss harvesting” to offset capital gains

With the stock and crypto markets down this year, it can be the ideal time to use a strategy called “loss harvesting,” which means selling taxable investment assets, such as stocks, mutual funds, and bonds, at a loss to offset any capital gains you may have realized earlier in the year. Capital losses offset capital gains dollar for dollar.

If your losses exceed your gains, you can write off up to $3,000 of collective losses against other income. Any losses in excess of $3,000 can be carried over into the next year. In fact, you can carry over such losses year after year over your lifetime.

Note that the loss harvesting strategy does not apply to tax-advantaged accounts, such as 401(k)s, IRAs, and 529 plans. Additionally, the IRS "wash-sale" rule prohibits using this tax write-off for buying a “substantially identical” asset within a 30-day window before or after the sale that generated the loss.

Given the restrictions, you should always consult your CPA or financial advisor before employing loss harvesting to ensure it doesn’t backfire on you. And if you’d like us to meet with you and your CPA or financial advisor, we offer that service to the clients in our top-tier support plans, so be sure to ask about that if you’d love help getting all of your legal, insurance, financial, and tax systems organized and coordinated before the end of this year.

4. Watch your required minimum distributions (RMDs)—or ensure your parents are watching theirs—if you or they are over age 72

If you have an employer-sponsored retirement plan, including a 401(k), 403(b), traditional IRA, SEP IRA, or SIMPLE IRA, you must start taking required minimum distributions (RMDs) by April 1st of the year that follows the year you turn 72. After that, annual withdrawals must be made by December 31st each year to avoid a serious penalty.

If you fail to take the proper RMD, you may face a 50% excise tax on the amount you should have withdrawn based on your age, life expectancy, and your account balance at the beginning of the year. That said, if you do make a mistake, you may be able to avoid the penalty by requesting a waiver from the IRS. You can request a waiver if your failure to take the RMD is due to a reasonable error, and you take steps to make the required distribution. To request a waiver, submit Form 5329 to the IRS, with a statement explaining the error and the steps you are taking to correct it.

Note that in 2022 the IRS updated its uniform lifetime table to calculate RMDs to account for longer life expectancies. As a result, your RMDs for this year may be slightly lower compared to previous years. To determine your RMD, refer to the IRS RMD worksheet, or use an RMD calculator.

Maximize Your 2022 Tax Savings

Implementing these—and other—year-end tax-saving strategies could save your family thousands of dollars on your 2022 tax bill. But if you don’t act soon, some of these opportunities may vanish for good, so meet with us, your Personal Family Lawyer® today to schedule your appointment and lock in your savings.

This article is a service of a Personal Family Lawyer®. We do not just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That's why we offer a Family Wealth Planning Session™, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.

Proper estate planning can keep your family out of conflict, out of court, and out of the public eye. If you’re ready to create a comprehensive estate plan, contact us to schedule your Family Wealth Planning Session. Even if you already have a plan in place, we will review it and help you bring it up to date to avoid heartache for your family. Schedule online today.


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