Although the Internal Revenue Service (IRS) warned last week that the refunds that would be obtained in the returns may be less in 2023, tax planning is important in the midst of a context characterized by inflation.
Many people tend to put aside the issue of taxes during the holidays; however, There are some key moves that if you make before the end of the year can help you save money on future returns.
2022 Standard and Itemized Deductions
Property taxes, state and local taxes, mortgage interest, and charitable contributions are among the top itemized deductions to take. In these cases you are required to have more than $12,950 of such expenses if you are single or $25,900 if you are a married couple to make it worth it, experts told USA Today.
Charitable contributions are some deductions over which you have more control. For those close to the dollar thresholds mentioned, it may be profitable to accumulate deductions to qualify for itemizing at least every two years or so. One way to do this is to donate extra money to charity one year and then deduct it the next.
Those who are small business owners apply the same concept. Paying the largest amount of tax-deductible business expenses, including utility bills and office supplies or other equipment, before the end of 2022 may help deduct them from your taxable business income.
Donate IRA money to charity
If you have money in an IRA that you don’t need for living expenses and you’re at least 70½ years old, You can withdraw some of the IRA money and donate it to one or more charities.
With this move, known as a qualified charitable distribution, or QCD, you won’t receive a donation deduction, but it also won’t cause the money withdrawn to go out of your adjusted gross income. This can help you avoid higher Medicare premiums and cover more Social Security benefits from taxes.
Convert 401(k) to Roth IRA
Some advisors recommend moving some of the money in the 401(k) account to an IRA or a Roth Ira. Roths withdrawals are not taxed and there are no minimum annual distributions to meet accounts. In addition, the potential for higher ordinary tax rates increases the value of benefits in the future.
However, Among the drawbacks to consider is that the amount that is transferred or converted will be subject to taxes in the year made.
Check that you did not pay less tax
Experts recommend making some obligations before the end of the year to ensure that too little has not been withheld from work income, withdrawals from retirement accounts, among other aspects. In this way, penalties and interest are not generated when filing a return later.
A penalty can be avoided if at least 90% of the current year’s tax liability is paid. Another option is to pay 100% of your tax bill for the prior year.
According to the IRS, among the papers that the declaration must carry are eight tax forms and documents. Through a statement, he told taxpayers to wait for “key documents” before filing their returns in 2023. He also told applicants to be attentive to Form 1099-K that reports income from third-party payment networks such as Venmo or Paypal.
It may interest you:
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– Top 5 tax-friendly states to retire in 2023