Let’s be honest: As we approach the end of the year, most of you guys aren’t thinking about taxes. That’s my job! The problem with most “tax idea” articles is that the writers seem to live in places that real people don’t. A great example is this one:
“A key year-end strategy is called “loss harvesting” –selling investments such as stocks and mutual funds to realize losses. You can then use those losses to offset any taxable gains you have realized during the year. Losses offset gains dollar for dollar. And if your losses are more than your gains, you can use up to $3,000 of excess loss to wipe out other income. If you have more than $3,000 in excess loss, it can be carried over to the next year. You can use it then to offset any 2022 gains, plus up to $3,000 of other income. You can carry over losses year after year for as long as you live.”
Now, that really is good advice, but it is advice written for very high net-worth individuals. How about some tax breaks for everybody? Well, here are a few that anyone can use and no matter your situation, chances are, me and my team can help you track down a few more, too. The key, of course, is to get those done before the year ends and you find yourself and your taxes in 2023. Lots of these close out on midnight, December 31.
• One of the best ways, and easiest, is deferring income. If you have the ability to send out invoices as a contractor or a 1099 employee, then sending out bills at a point in December where they cannot be paid until the new year is a great way to legitimately lower your income on paper – without losing one dime. You still get the money, but you have pushed the tax liabilities to the next year. Yes, you still have to pay, but a lot of things can happen in a year.
• Maximize your retirement accounts. No matter whether you have an IRA, a Roth, or a 401(k), socking away as much as allowed into those is a critical way to save and not pay. Each type has its own rules, but the overall benefit is free money (or at least money that is not taxed twice). Every tax professional has their opinions on which savings vessel is best, but all of us can agree on one thing: Use this tool to its fullest extent to not only save for retirement, but also to save on your tax bills.
• Are you using your flexible spending accounts – and if not, you need to! If your employer has a flexible spending account set up and you have deferred money into it, great. The downside is that money is usually set up as a “use it or lose it” benefit and you will either lose it after December 31 or, in some cases, you may be able to use it up until a certain point in early 2023. Either way, the time to check is right now before the money goes away. Most of these are for child care or medical bills, so there is no time like the holidays to get this taken care of!
• Give away some deductions? You got it! Charitable giving is one of the hallmarks of the holidays and many of those charities allow you to deduct the donation. In the “good old days” you might have gotten away with simply noting the donation on your taxes, but today, no matter what you give, you need to document it. At the same time, if you have the means, larger donations of cash or property can offer you a sizable tax benefit – think old car or a durable good – at fair market value versus the modest amount that the dealership or the retailer might have offered you for the same product.
It’s easy to think of filing taxes as a “spring” thing, but the real work – and the solid returns – are done while the tax year is still in effect. Before you know it, the year will be over, so if you aren’t happy with your tax bill last year or the amount of your refund, then my advice is to come in and see us to make your 2022 a little more profitable.
All the best,