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As we approach Q4, now is the perfect opportunity to review your current situation and implement tax-saving strategies to reduce taxes for the coming year. These steps must be taken before the end of the year to reflected in your tax return due in April. This article will outline several steps that can be taken to minimize 2022 taxes and for taxpayers to establish a fiscal and financial plan for their future.

Simple Strategies that can Provide a Significant Benefit for 2022 and Future Years

Maximize Retirement Benefits

In 2022, contributions to 401K and 403(b) plans can reduce taxable income up to $20,500 (individuals that are 50 or older can add $6,500 to the basic workplace retirement plan contribution). For example, an employee earning $100,000 in 2022 who contributes $19,500 to a 401K, reduces their taxable income to only $79,500. Even small business owners can set up retirement plans such as a SIMPLE IRA, SIMPLE 401K, SEP, and a Solo / One Participant 401K that provide tax savings to the business owners and the employees – while providing a retirement program for the future.

Individuals that do not have a retirement plan at work may obtain tax savings by contributing up to $6,000 ($7,000 for those 50 and older) to a deductible IRA.

Use a Health Savings Account (HSA)

Employees with a high-deductible health insurance plan can use an HSA to reduce taxes. As with a 401K, HSA contributions (which may be matched by the employer) by payroll deduction are excluded from the employee’s taxable income. For 2022, the maximum contribution is $3,650 for individuals and $7,300 for families. These funds can grow without the requirement to pay tax on the earnings. An extra tax benefit of an HSA is that when it is used to pay for qualified medical expenses, withdrawals are not taxed.

Minimizing Capital Gains Taxes

Mutual Fund Distributions – If you are considering the purchase of a mutual fund at the end of the year, delay buying it until after the dividend record date to avoid being taxed on capital gain distributions. Towards the end of the fourth quarter, mutual funds generally declare capital gain distributions. These gains are subject to tax even if reinvested and even if the shares value is less than your purchase price. An alternative to a mutual fund is a passively managed exchange-traded fund, which typically has less capital gain distributions.

Charitable Donations of Appreciated Stock – Consider donating publicly traded stock. Qualified appreciated stock is normally publicly traded stock and is eligible to be deducted at its fair market value. Charitable gifts of real property and closely held stock can only qualify for a donation up to their basis. The publicly traded stock must be held for more than one year. By doing this, taxpayers obtain a double benefit of receiving a deduction equal to the full fair market value of the stock and they avoid paying the capital gains tax on the appreciation. It should be noted that the contribution of long-term appreciated property / qualified appreciated stock is generally limited to 30% of adjusted gross income. Thus, the contribution should be timed so it is made when your income is higher.

Unrealized Gains and Losses – Offset the tax impact of any realized gains taken this year by harvesting losses in your portfolio or, in some cases, realizing gains to offset losses (for example, to reduce concentrated stock positions). Any harvested tax losses not offset by gains in 2022 can be carried forward to future tax years throughout an investor’s lifetime. Taxpayers that harvest losses must avoid the wash-sale rule that will disallow losses. This rule provides, that if a taxpayer sells a security at a loss and buys the same security within 30 days of the sale – that loss will be disallowed.

Review Withholding and Estimated Tax Payments

Underpaid withholding taxes and estimated taxes may be subject to penalties. If you are potentially subject to these penalties, consider increasing withholding taxes from wages and bonuses in the fourth quarter. Amounts withheld in the fourth quarter are deemed to be paid equally over each quarter, which can minimize or eliminate a penalty that may be related to the three prior quarters. Taxpayers that have tax withheld from their wages may generate additional income from investment income or real estate holdings that require additional tax through withholding or estimated payments. To avoid a penalty either 90% of the tax shown on your current return or 110% of the tax on your prior year’s tax return must be paid, certain limitations do apply.

Wills and Trusts

While significant estate and gift planning techniques are beyond the scope of this article, taxpayers should be reminded to review wills and trusts to ensure that they reflect any changes in their personal or financial situation that occurred during 2022 or are likely to occur in 2023. It should be noted that in the Tax Cut and Jobs Act of 2017, the estate, generation-skipping transfer, and gift exclusion amount increased from $5 million to $10 million. Also, the TCJA retained the “step-up” based on fair market value for appreciated assets that are transferred by a decedent. While revisions to this rule have been proposed – it is still available.

RVG &Company

While the fundamental principles of the like-kind exchange appear straightforward, complexities can arise with the calculation of basis and depreciation along with the use of deferred exchanges and the application of the safe harbor rules.

If you would like to discuss the benefits, rules and strategies related to like-kind exchanges, please contact RVG & Company today! (954) 233 1767 | [email protected]

DISCLAIMER: The information covered in this article is not intended to provide and should not be relied on for tax, accounting, or legal advice; instead, all information, content, and materials informed are for informational purposes only. Consult your tax, legal, or accounting advisor before taking action. If you require advisory services, please contact our office.