2022 Year End Planning Ideas

Vestpointe Wealth Management |

As we near the end of 2022 (believe it or not!) now is the time to consider your last-minute tax moves that may save you some hard-earned dollars. The following items are a consolidation of planning ideas that we come across often and can be implemented before the end of the year. This advice is general in nature, and you should consult with your tax advisor.

Harvest capital losses – 2022 has been an awful year in the stock and bond markets. Many investors have seen their investment portfolios drop in value. If your investments have inherent capital losses, consider selling those investments and “harvesting” capital losses. Those losses can be used to offset capital gains and up to $3,000 per year against ordinary income. Any excess amounts can be used to carry over to future years.

Charitable contributions – If you itemize your deductions, you may consider making charitable contributions that can reduce your taxable income. Just keep in mind that the standard deduction is rather high now ($25,900 for married filing joint or $12,950 for single). So, unless your itemized deductions will be more than this amount, making contributions may not decrease your taxable income. A helpful solution to this problem may be to “bunch” your contributions into one year and skip making contributions the following year.

Consider using a donor advised fund – If you make charitable contributions of $5,000 or more in one year, you should consider using a donor advised fund (“DAF”). A donor advised fund can used to transfer appreciated investments to it and get a deduction for the fair market value of the investment. The inherent gain that you transferred to the DAF is not taxed and you can use the proceeds inside or your DAF account to fund your favorite charities.

Retirement contributions – Consider contributing to an IRA (individual retirement account), SEP IRA or 401(k). These contributions can reduce your taxable income and help you save money for retirement. If you haven’t maxed out your contributions to your 401(k) yet for 2022, consider withholding more or working with your payroll to make that happen before the end of the year. IRA contributions can be made all the up until filing your tax return by April 15th of next year, so you have plenty of time to get those done. The 2022 maximum for 401(k) contributions is $20,500 if you are under age 50 or $27,000 if you are age 50 or older. The IRA maximum for 2022 is $6,000 or $7,000 if you are age 50 or older.

Qualified Charitable Distributions – If you are age 70-1/2 or older and have funds in qualified accounts, you may consider taking some of your required minimum distributions (“RMDs”) and transferring funds directly to charity. If you do this, you won’t have to report the retirement account distribution as income. This means you won’t pay tax on the income but also a reduction in your income can have other beneficial effects such as reducing phaseouts, etc. The maximum amount you can do with a QCD per year is $100,000.

Monitor IRMAA – (income related monthly adjustment amount) If you are on Medicare, you may know that the higher your income is, the higher your Medicare premiums are. By monitoring, your income levels, you can have a sense of how much your premiums will be for the following year. Medicare adjusts your premiums after they get tax returns figures reported from the IRS. It may not be possible, but if you can reduce your income into a lower bracket through tax strategies or deferring income, you can reduce your Medicare premiums.

Electric vehicles – As electric vehicles (“EVs”) gain popularity, many people considering them look to take advantage of the tax credits that are available. Unfortunately, two of the large EV automakers (GM and Tesla) are no longer eligible for tax credits. If you are interested in buying an EV and want to take advantage of a tax credit, you may want to wait until 2023. The Inflation Reduction Act passed in 2022, dramatically changes the credits for EVs starting in 2023. Tax credits for GM and Tesla (as well as other automakers) will be available starting in 2023, but only if your income is low enough. Although the rules are quite complicated going forward, you may want to investigate those rules if you are considering an EV as your next car.

Tax rates and inflation adjustments – Since tax brackets in 2023 aren’t changing, but are inflation adjusted, consider the age-old strategy of deferring income and accelerating deductions. This strategy is especially pertinent to business owners who have the ability to affect their income and deductions.

Businessowners – Business owners have a lot more planning opportunities available to them. This short article isn’t meant to address the tax savings opportunities available to business owners. For one, they are too lengthy, but in addition, they really should be treated as a separate subject. That being said, we work with a lot of business owners in establishing and maintaining retirement plans for their businesses. These plans can create significant tax deductions and the opportunity to save towards retirement.

Health savings accounts – If you are eligible, consider contributing towards a health savings account (“HSA”). HSAs are often referred to as the triple tax advantaged strategy and as a CPA and financial planner is one of my favorite strategies. An individual can contribute up to $7,300 or $8,300 for a family for 2022. This is one of my favorite strategies because not only does the contribution reduce your taxable income, the funds and the growth of the funds in the HSA are tax free if you use them for qualified medical expenses. If you are lucky enough to never need these funds for medical expenses, they can be withdrawn after age 65 for general spending purposes without penalty. However, the growth will be subject to income tax if not used for medical purposes.

Not everyone is eligible to use an HSA. If you would like to review the requirements for HSAs, please click on the following link to see our previous blog post.

If you have any questions, or if you would like to schedule a consultation to discuss your tax planning, please feel free to contact us at (602)212-1040 or info@vestpointe.com