With so much end-of-year focus on the holidays, it’s easy to overlook the financial gifts you can give yourself by making the right year-end tax moves. Making those moves now, before the clock strikes 2023, can help lower your tax burden when tax season actually rolls around.
Learn: 6 Types of Retirement Income That Aren’t Taxable
More: 5 Things You Must Do When Your Savings Reach $50,000
Advertisement: High Yield Savings Offers
Some moves are simple enough, such as charitable donations that can be deducted from your 2022 tax returns. Others might take a little more work, like reviewing your 2022 tax withholding to make sure you contributed enough to avoid a big tax bill when you file next year.
The following describes six tax moves you should make right now.
1. Maximize Your 401(k) Contribution
Upping your 401(k) contribution might be a challenge in a year of soaring inflation, but it’s still one of the best moves you can make at the end of the year. Doing so bolsters your tax-deferred retirement savings and gives you a chance at more free money through employer matches. TurboTax recommends putting the maximum amount of money into your 401(k) before the end of the year. The contribution limit for 2022 is $20,500 for those under 50 and $27,000 for those 50 and over who are allowed catch-up contributions.
Take Our Poll: Do You Think You Will Be Able To Retire at Age 65?
2. Cash In Investment Losses
If your stocks have taken a beating this year, one way to recapture some of those losses is through “tax-loss harvesting.” This basically means selling investments at a loss and then subtracting that loss from any capital gains you had from selling other investments, CNBC reported. When your losses exceed your gains, you can deduct up to $3,000 a year from your regular income and carry forward any extra losses indefinitely.
4. Defer Your Income
If you are self-employed, a freelancer, private contractor or independent consultant, you know that income is taxed in the year it is received. Deferring that income into the next year also defers the tax you have to pay on it. Consider remitting your final bills or invoices in late December 2022 to ensure that the payments don’t arrive until 2023 — which pushes back your tax obligation another full year. Even if you work for an employer and have taxes deducted from your paycheck, you can request that year-end bonuses be deferred until early 2023 if that’s something your employer does.
5. Donate To Charity
This is not just good for the soul, it’s also good on the wallet since donations can be deducted from your taxes. As Forbes noted, you typically need to itemize your deductions to claim charitable donations, and your total deductions must exceed your standard deduction amount in order to itemize. Standard deductions for the 2022 tax year are as follows: