Take Steps to Save On 2022 Income Taxes Before the Year Runs Out

As 2022 winds down, it’s a good time to assess whether there are opportunities to trim this year’s tax bill. Waiting until you begin to work on your tax return in early 2023 will be too late to save in most cases. So, if you’re interested in potentially saving on taxes, you should plan now, before 2022 comes to an end. Consider if any of these actions make sense for you.

Manage your deductions

Wondering if you should itemize your deductions? For 2022, the standard deduction for a single person is $12,950, and for a married couple filing a joint return is $25,900. If your deductible expenses1 (such as mortgage interest, state and local income or sales taxes and property taxes) don’t exceed that amount, claiming the standard deduction may be best for you. For many people, this can be a close call – you might itemize one year and claim the standard deduction the next. To the extent possible, you may consider consolidating deductible expenses in one year to itemize and then claiming the standard deduction in the future. 

Make timely investment decisions

Buying and selling investment decisions shouldn’t be based on tax considerations alone. If you own mutual funds in taxable accounts, you may receive a capital gain dividend before year’s end, which will be subject to tax. You may want to avoid buying into a mutual fund late in the year if it is on the verge of making a sizable capital gain payout. By doing so, you pick up a quick tax liability when the gain is paid, without benefiting from the previous performance that generated the gain. 

While no one likes investment losses, you may be able to use them to generate a positive result: a lower tax bill for a given calendar year. The U.S. tax code requires that losses first offset gains of the same type. For example, short-term losses will first offset short-term gains. Because of the higher tax rate for short-term gains, focusing on short-term losses can have a more substantial effect on your tax savings than long-term losses – especially if you are in a higher federal tax bracket. If you didn’t have capital gains this year, you can use up to $3,000 in capital losses to reduce ordinary income. You can carry over any remaining net capital loss to future tax years until you use the loss.

Maximize retirement plan contributions 

Boosting pre-tax contributions to your workplace retirement plan may reduce current taxable income while helping you build savings for the future. How much it may impact your current taxable income is based on your current tax rate and your filing status. 

Take full advantage of charitable contributions

In 2022 only, an individual who doesn’t itemize deductions for the tax year may deduct charitable contributions of up to $300 ($600 for a married couple filing a joint return). To be eligible, contributions must be made in cash to certain charitable organizations but not to donor-advised funds or certain private foundations. 

Seek guidance

If you are seeking to implement these or other significant tax-saving strategies, be sure to check with your financial and tax advisors for confirmation that the measures you are implementing are the most appropriate for you.

1 Subject to any applicable limitations. 

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Michael D. Lanuto, CRPC®, AWMA® is a Financial Advisor with S.M. Miller & Associates, a private wealth advisory practice of Ameriprise Financial Services, LLC. in Albany, NY.  He specializes in fee-based financial planning and asset management strategies and has been in practice for 7 years. To contact him: 518-949-2039; 4 Atrium Drive, Ste 200, Albany, NY, 12205; Michael.Lanuto@ampf.com; https://www.ameripriseadvisors.com/michael.lanuto/lp/request-contact/3/. 

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