The New Year is around the corner and soon for some of you, will be making your New Year’s resolutions. But before we get to this resolution stuff, how about taking care of some unfinished business still to be accomplished in calendar 2022.
Tax Planning:
There may be several possible options available depending upon your circumstances.
Gifts
This year you are allowed to make a gift if single of up to $16,000 per person without having to file a gift tax return. If you are married filing jointly, the gift tax exclusion amount is doubled per person. What it means is that someone can give you a monetary gift of up to $16,000 and generally you will not have to pay taxes on the amount as a recipient and the giver will not be required to file a gift tax return on the amount gifted.
In addition, you can use this gift tax exclusion in your favor. Instead of gifting an individual, you make the gift contribution to an institution on behalf of someone directly, then there is no limit on the gift tax amount. The most important factor to remember is that the gift must occur no later than by December 31, 2022.
Itemizers
The Standard Deduction for tax year 2022 will be $12,950 for singles and $25,900 for individuals married filing jointly. Most people will use the standard deduction since it exceeds their itemized amounts. But if you are close, why not try and take advantage of itemizing? For example, the maximum you are allowed to deduct in state and local property tax is $10,000. However, if your state will allow you to pay property tax early, then you can deduct those amounts which will allow you to itemize and thereby reduce your tax liability.
Medical expenses are another area in which you could itemize your deductions and reduce your 2022 tax liability. The deduction requires your expenses to exceed your adjusted gross income by 7.5 percent, but if your medical expenses are high and you are close, why not go ahead and schedule your dental, eye care and surgery you have been procrastinating on before the year’s end and improve your tax advantage?
Mutual Funds Surprise
There are investments such as mutual funds that require companies to pay out dividends and capital gains distributions earned during the year. By reviewing this financial checklist for 2022, you may offset some of your liability when your tax bill arrives in April.
Distributions are usually published in November or December. Given that information, you can calculate the amount of your distribution. Next, you should examine your mutual fund portfolio and determine if there are any stocks which have decreased in value. If so, you should see those stocks. The losses from those stocks could be used to offset your gains and therefore reduce your tax liability.
Retirement Savings
With most people not having enough money saved for retirement, this is always a critical tax savings at the end of each year. For those who are younger than fifty (50) years of age, you can contribute up to $20,500 into your 401(k) fund this year. If you are older than fifty years of age, you can increase your contribution by adding an additional $6,500. The bottom line is that you need to max out on your contribution if you are able to do so this year.
Finally, if you are self-employed you may have the best of both worlds being able to contribute as an employer and employee. What it really means is that you can contribute up to between $61,000.00 or $67,500.00 to your retirement account; which is almost three times the amount you can contribute as an employee.
Miscellaneous
There are several other categories which you should review before the year ends to help avoid or reduce any financial or tax surprises. These would include charitable contributions and donor advised funds, contributions or gifts to 529 plans, revising your IRS Form W-4 and adjusting for withholdings so that your underpayment for any tax liability in 2022 will be less and reviewing your Cash App and other transfers made during the year to avoid any 1099 and other tax forms being reported to the Internal Revenue Service (IRS).
WHAT’S UP! According to a CNBC report, almost half of us are holding onto unused gift cards. They estimate that the total value of unused gift cards to be approximately 21 Billion dollars. The average gift card has an unused balance of $175 dollars. So what did you get for Christmas? The only point I’ll make here is this: businesses charge what is known as inactivity fees on unused gift cards that reduces the value. If you have no use for gift cards, find a local non profit and give as a donation. And that’s what’s up!
Ruthven R. Phillip, Esq., is a tax attorney, Stewardship and Philanthropy Ministry Assistant, and CEO of Give2Getrich, LLC . Give2Get Rich, LLC 2022. All Rights Reserved. Any distribution or reproduction of part or all of the contents in any form is prohibited.
