2023 Tax Refund: Year-End Income Tax Checklist

Eeven if you will not have to produce your 2022 income tax return until the end of January at the earliest, there are a few steps you can take now that may come in handy when it’s time to complete your Form 1040 on April 18, 2023.

Taking stock of your tax situation at the end of the year is a wonderful way to minimize your tax bill and increase your tax refund.

Although some of these tax planning techniques can significantly reduce your tax liability, you must act quickly. There are only a few months left in 2022 to make the most of your tax status, and some of these actions will require planning and time before the tax deadline. The 31st of December.

It’s worth considering your tax status, because a little work now could mean big savings in the future. To prepare for the upcoming tax season, read on for year-end tax tips.

Check your paycheck for tax withholding

Since income tax in the United States is “pay as you go,” your employer deducts money from your paycheck, and independent contractors are required to pay estimated quarterly taxes. A penalty may be imposed at tax time if insufficient taxes have been paid throughout the year.

Your Tax Form W-4, which includes information about your filing status and estimated tax deductions, is used by your employer to calculate the amount withheld from your paycheck. Reviewing your W-4 and current withholding at the end of the year is a fantastic opportunity to decide if you want to make any changes.

To modify your Form W-4, you can estimate your current tax withholding and anticipated tax refund using the IRS Tax Withholding Estimator Tool. You can provide your employer with a revised Form W-4 at any time, and your employer must implement the changes at the start of the first payment period that begins more than 30 days after you provide the updated Form W-4.

Sell ​​losing stocks to offset capital gains

The S&P 500 index is down more than 20% in 2022 and corporate price increases have been few. It was a tough year for the stock market. All of these potential stock losses present a perfect opportunity to “harvest tax losses,” which is one of the benefits of a bear market.

The tax plan works by realizing losses or selling stocks and other assets that have lost value, to offset any potential capital gain.

Any income you receive from the sale of assets, such as stocks, real estate, automobiles, furniture, or other tangible property, is called a capital gain. However, to realize losses and offset gains, you must actually sell the assets in question.

Maximize your contributions to your retirement account

One of the most effective tax deductions comes from retirement accounts like 401(k)s and IRAs because you can reduce your tax burden while building up savings for the future. Contribute as much as you can before the end of the year to any retirement account.

For 2022 taxes, employer contributions are not included in the $20,500 deduction limit for 401(k) contributions. A worker in the 24% tax bracket could reduce his taxable income by more than $5,000 just by setting money aside for the future.

To maximize your possible retirement deductions for the last pay periods of 2022, increase the percentage of your normal 401(k) contribution.

Make your home more energy efficient

There are several compelling reasons to make your home “greener” now that the American Recovery and Reinvestment Act of 2009 is in effect.

The amount of tax credits you can receive for improving your home’s energy efficiency has been tripled by law, although the credit percentage has fallen somewhat from its maximum of 30% for improvements made before. 2020.

Tax deductions have a lesser effect on your tax bill than tax credits. Tax credits immediately reduce the amount of taxes you owe the IRS, while deductions only affect your level of taxable income.

You can now receive 26% of the money back if you install a solar power system, wind turbine or geothermal heat pump before January 1, 2023. The credit drops to 22% the following year.

Alternative energies are not the only source of tax credits for energy efficiency measures. Although less than for alternative energy, tax credits can also be earned by simply installing new Energy Star-certified qualifying furnaces and boilers.

Since not all Energy Star certified products are eligible, be sure to review the manufacturer’s tax certification statement.

Consider deferring year-end bonuses and payments

It’s not always easy to ask your employer to defer payment, but if you’re on a year-end bonus and want to minimize your taxable income this year, consider asking them to pay you in January. instead of December.

Similarly, if you’re self-employed or a contractor and want to reduce your taxable income for 2022, consider deferring paying your bills until January instead of sending them in November.

The only thing you’re doing is delaying paying taxes on that money until 2023, so you’ll have to decide whether this year or the next would be the best to earn that money.

Complete all your charitable contributions

If you prefer to make financial contributions to the causes and organizations you support and itemize your tax deductions, do so before the end of the year to best reduce your taxable income for 2022. Up to 50% of their taxable income is often allowed. as a charitable deduction for most taxpayers.

Check the IRS’ directory of tax-exempt organizations to see if your donation will be tax-deductible before giving it to anyone. A tax identification number that identifies them as tax-exempt will also be provided to all legitimate charities and nonprofits.

Check your required minimum retirement account distributions

The SECURE Act of 2019 raised the age from 70 12 to 72, for people reaching 70 12 after December 31, 2019. Under US tax law, Americans must begin receiving distributions from their own retirement savings or that of the employer when they reach a specific threshold. age.

For 401(k) plans, regular IRAs, profit sharing programs, and pensions, these distributions are required. As long as the owner of the Roth IRA is still alive, they are not needed.

Combine all medical expenses in one year

For many taxpayers, medical expenses can be a significant tax deduction, but the IRS only allows you to deduct costs that exceed 7.5% of your AGI.

It may be beneficial to consolidate all of your major medical expenses into one year. These expenses can include procedures, routine maintenance, hospital visits, dental care, prescription drugs, eyeglasses, hearing aids, and therapy for mental health issues, as well as travel to and from providers.

Plan your business expenses

If you are self-employed or self-employed, you can significantly reduce your tax liability by deducting your business expenses. You may consider paying next year’s expenses up front before the end of 2022 to reduce your tax liability, based on what you have already spent on your professional work this year.

The timing of your deductions may vary depending on whether you use the cash method or the accrual method.

It is crucial to remember that each person has a unique tax status. There’s no one way to file taxes, but these year-end tax tips may be helpful. Before making any important tax decisions, be sure to speak with a tax professional.

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