Before 2022 comes to a close, take some time to review these essential items to ensure you are not missing something that could cause tax trouble when you file your tax return:
1. Take required minimum distributions (RMDs). If you are age 72 or older, you need to take RMDs from certain retirement accounts before Dec. 31 to avoid a 50% penalty. This includes most IRAs (except Roth IRAs) and 401(k)s. Your annual RMD is calculated by dividing the prior Dec. 31st balance by the life expectancy factor provided by IRS tables.
2. Watch for your Identity Protection PIN from the IRS. If you are a victim of tax-related identity theft, the IRS will mail you a one-time use identity protection personal identification number (IP PIN) as added security. The IRS mails IP PINs between mid-December and early January, so look for your IP PIN during this time period.
3. Contribute to retirement accounts. Making contributions to tax-advantaged retirement accounts like a traditional IRA or 401(k) is a great way to lower your tax liability, even if you don’t plan to itemize your deductions.
4. Harvest gains and losses. If you expect to have capital gains from your investments, selling stocks in a loss position to offset the gains will lower your tax liability. In fact, you can claim excess losses of up to $3,000 to decrease your ordinary income, such as wages from your job! Timing matters with investment sales and income taxes, so having a year-end strategy can help lower your tax bill.
5. Make last-minute tax moves. Here are a few ideas worth considering:
• Donate to charity to maximize itemized deductions
• Make a tax-efficient withdrawal from your retirement account if you are over age 59½
• Take advantage of 2022’s gift-giving limit of $16,000 per person ($32,000 if married)
• If you own a small business, delay receipt of income from 2022 into 2023, or accelerate expenses from 2023 into 2022.
Understanding your current situation and having a plan will help maximize your year-end tax savings.
— By Nancy J. Ekrem, CPA
DME CPA Group PC
Certified Public Accountants & Business Consultants