January 2023 Tax Tips
5 Year-End Tax Essentials
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:
- Take required minimum distributions (RMDs). If you are age 72 or older, you need to take RMDs from certain retirement accounts before Dec. 31st 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.
- 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.
- 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!
- Harvest gains & 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.
- 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.
Should you wish a review of your situation, reach out to us at Jason@ossercpa.com. It’s better to be prepared than surprised when it comes to your tax obligation.