Here are the last-minute tax moves you should make before year-end

If you want to lower your taxable income, there's a host of things that you can do before the end of the year.

You can start by shoring up your retirement.

The benefit of saving through a retirement plan allows you to take the current reduction in taxes and you land the tax-deferred growth inside the plan. The funds are taxed when withdrawn, but the compounding of the tax-deferred rate of return can mean higher balances than taxable accounts with identical investments.

Workers who have a 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan can contribute up to $20,500 for 2022, and for next year that jumps to $22,500. For those 50 and over, you can save an additional $6,500.

The annual contribution limit for individual retirement accounts, or IRAs is $6,000 this year. Individuals 50 and over can save an additional $1,000 to IRAs.

If you’re self-employed, you can put more of your income away by contributing to a Simplified Employee Pension plan, or SEP IRA. The contribution limit for a SEP IRA. for 2022 is 25% of your compensation or $61,000 — whichever is less.

While you have until tax filing day in April to make these IRA contributions, it’s a good idea to take steps now to be sure you have funds set aside to do so. For individuals, the last day to file your 2022 taxes without an extension is April 18, 2023.

For those who participate in SIMPLE plans — which provide small employers with a way to contribute toward their employees' and their own retirement savings — the maximum amount individuals can contribute is $14,000 for 2022. The catch-up contribution limit for workers 50 and over in SIMPLE plans is $3,000.

If you’re self-employed, consider setting up a solo 401(k) plan. To make contributions for 2022, you must establish the plan by Dec. 31.

Itemizing

If you itemize your taxes, there are a few ways to lower your income.

First, take advantage of charitable giving. You may be able to claim charitable contributions for tax year 2022 if you’ll have write-offs exceeding the standard deduction ($12,950 for singles; $25,900 for married couples filing jointly).

If you're a homeowner, think about if you can pay your January mortgage payment in December to increase how much mortgage interest that you can deduct from your taxes. Similarly, you can also pre-pay your property taxes for 2023, if your state allows it. That can be added to your state and local tax deduction.

Consider ramping up unreimbursed medical expenses. Taxpayers can deduct qualified, unreimbursed medical expenses that are more than 7.5% of their 2022 adjusted gross income. There’s still time to schedule appointments and procedures that will increase the amount of your deductible expenses.

HSAs vs. FSAs

Max out your Health Savings Account (HSA) if you have one. Health savings accounts let you put money aside for qualifying health expenses, tax-free, if you have a high deductible health plan. Distributions for qualified health expenses are tax-free, too.

You can contribute up to the annual maximum amount as determined by the IRS. Maximum contribution amounts for 2022 are $3,650 for self-only and $7,300 for families. The annual “catch-up” contribution amount for individuals age 55 or older is $1,000.

You generally have until the tax filing deadline to contribute to an HSA. For tax year 2022, you can make contributions up until April 18, 2023. The key is that you must have been enrolled in an HSA-eligible health plan as of December 1 of this year, per the IRS's “last-month rule.”

If you’re eligible to contribute to an HSA, you’re considered eligible for the entire year and can contribute up to the maximum. But you must keep your high-deductible health coverage for the next 12 months. If you lose qualifying health coverage before the end of 2023, you will owe taxes and possibly a penalty on the extra contribution.

Review your tax-free health care Flexible Spending Account (FSA) if you have one. Unlike an HSA, most FSAs are “use it or lose it.” In other words, you could give up using anything left in your FSA account at year-end. So tap the funds to pay for out-of-pocket medical expenses, including deductibles and co-payments, unreimbursed dental and vision expenses, eyeglasses or even hearing aids.

Sell the losers

Minimize taxes on 2022 stock gains or losses. If you have investments outside of a retirement plan, such as stocks or bond funds (other than municipal bond funds), you’ll typically pay taxes on their dividends and interest and potentially pay capital gains tax when you sell them.

If you cashed in investments that made money during the year, you’ll pay taxes on those gains. To lessen the tax impact, you might consider selling investments that took a dive in value. Those losses can offset your gains and if your losses exceed your gains, you can put up to $3,000 in losses against other income. Any excess losses after that can be carried forward to future years.

Kerry is a Senior Columnist and Senior Reporter at Yahoo Money. Follow her on Twitter @kerryhannon

Read the latest personal finance trends and news from Yahoo Money.

Source: Read Full Article