Tax Tips for 2022
It’s getting to be that time of year again when we all have to think about tax filing for last year. We want to remind everyone of some strategies you may be able to take advantage of on your 2021 tax return.
It’s not too late to max out things like IRAs, Roth IRAs, SEPs, and Health Savings Accounts for last year. You can still make the additional contributions before the filing date this year, which is Monday, April 18th. Maxing out your contributions is always a good idea because it can increase your savings and investments, while decreasing your annual tax bill.
Tax-loss harvesting is another strategy that can help investors minimize any taxes they may owe on capital gains or their regular income. As a strategy, it involves selling an investment that has lost value, replacing it with a reasonably similar investment, and then using the investment sold at a loss to offset any realized gains. Keep in mind that tax-loss harvesting only applies to taxable investment accounts; retirement accounts like IRAs and 401(k) accounts grow tax-deferred so they are not subject to capital gains taxes.
Another common question we get each year is about gifting – whether it’s to a friend, family member, or a favorite charity. I always recommend that clients consider gifting appreciated securities rather than their hard-earned cash. Gifting an appreciated security means getting a write-off for its current full value. So, even if you only paid $10,000 for a security, and it’s now valued at $20,000, you can write off the whole $20,000 when you donate or gift it. And you can even gift appreciated property or real estate.
This year, the IRS has also increased the “above the line” deduction that came about in 2020, to $300 a person. By itself it isn’t much, but they’ve also increased the amount you can donate. As part of that same law, Congress increased the amount of your Adjusted Gross Income that you can donate from 60% to 100%.
You can also use a Qualified Charitable Deduction, or QCD, to give your Required Minimum Distributions to charity if you don’t need them. That can lower your tax bill significantly, while still allowing you to do good work for your favorite charity.
Finally, one strategy that hasn’t changed in years is bunching your deductions. Essentially, bunching deductions – whether to pay state and local or income taxes, along with things like charitable contributions into a single year, rather than spreading them out over two or more years - can help get you over the higher annual deduction, and can save you some on your tax bill.
These are all good suggestions as you consider your taxes for 2021. But, figuring out which of these are the right strategies for you can be challenging, and so we’re here to help.
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