McHenry Times

As the pumpkins fade and we begin to be surrounded by peppermints and holly, it’s a great reminder to assess 2022 before the year ends. We recommend looking at these few areas to boost your tax situation. 

MAXIMIZE PRE-TAX OPPORTUNITIES

1. Retirement

Are you contributing the maximum to your retirement accounts? This is a great way to decrease your taxable income. For 2022, the limits for these common retirement account plans are:

• 401(k) Plan Contributions
• $20,500
• $27,000 for those over the age of 50
• SIMPLE Plan Contributions
• $14,000
• $17,000 for those over the age of 50

If you are not on track to maximize these contributions, there is still time to adjust your payroll for the last month of the year. 

2. Health

Do you have a Health Savings Account (HSA)? This is another excellent tool to use to maximize your tax position. Contributions into this account are pre-tax. Unlike a flex account, these are NOT “use it or lose it.” Instead, these accounts are yours to use at any time (now or in the future). Should you change jobs, this account is an asset of yours, and you can continue to use it in the future, even if you are no longer working for that company. The maximum contributions for HSA accounts for 2022 are:

• $3,650 for self-only accounts
• $7,300 for family accounts
• $1,000 annual catch-up for individuals age 55 or older

A flexible spending account (FSA) allows contributions to be funded by salary reduction, similar to the HSA accounts. However, this account IS “use it or lose it.” The individual will forfeit any unused balances in this account at the end of the year. Now is a great time to review the balance of your account. Submit any unremitted expense reimbursements and schedule any last-minute health appointments. 

CHARITABLE DONATIONS

If you will be making donations in 2023, consider donating them in 2022 to increase your total charitable donations for the year. Charitable donations are tax deductible if you itemize on your tax return. However, if the standard deduction is more beneficial for you, consider if you are eligible for a Qualified Charitable Distribution (QCD) from an IRA account. A QCD allows individuals to direct funds from their IRA to the charitable organization of their choosing. Not only does this allow individuals the opportunity to donate, but it also meets the Required Minimum Distribution (RMD), which is now required at the age of 72. The individual must be 70 ½ years or older to take advantage of this. QCD will benefit individuals even if they are not itemizing their deductions since it will decrease taxable income from both the QCD amount and the standard deduction amount.

BUSINESS EXPENSES

If you report a business on your individual income tax return, consider any 2023 expenses that can be purchased in December. This results in expenses being reported in 2022, which can offset any income for the year. Although this does not decrease tax in total, it is a strategy that delays when the taxes will be due by the individual. However, we recommend purchasing only items that are needed by the business. We would never recommend spending unnecessary dollars to save money on taxes.

Should you have any questions on any of these few areas and how it relates to your specific tax situation, please feel free to contact our office. Have a happy holiday season!

Original source can be found here