2022 Tax Breaks

December 19, 2022 - 2 MINUTE READ

Believe it or not, the end of the year is upon us, which means it’s time to review year-end tax moves. With inflation up and markets down in 2022, there’s plenty to track and be aware of. Most actions for tax-year 2022 must be made before January 1st, 2023. There are a few exceptions, such as traditional IRA contributions, Roth IRA’s, and Health Savings Accounts for 2022. These contributions can usually be made until April 18th, 2023, next year’s tax deadline.

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Inflation has increased the penalty on tax underpayments to 6%, with it likely to rise to 7% in 2023. This is important to check if your income has been uneven or higher for this year. Most Americans must pay 90% of their taxes before the April deadline to avoid the penalty.

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Strategizing charitable donations is another way to lower your tax bill and feel good about donating to your favorite charity. Many donate appreciated investments held longer than a year, donors can take a deduction for the fair market value of the assets. Donors age 70 ½ and older can donate traditional IRA assets known as a qualified charitable donation. There’s no deduction for these gifts, but the withdrawals don’t count as taxable income and can help satisfy RMD’s.

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Lastly, consider harvesting investment losses during this down market in 2022. These losses in taxable accounts can be used to offset gains, plus up to $3,000 against your ordinary income can be used. The losses you harvest can also be carried forward in subsequent tax years. One thing to be mindful of is the wash sale rule, you cannot repurchase the same holding until 31 days after selling.