Key tax moves for 2022

Consider ways to help reduce taxes on your income and investments by acting now.

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Key takeaways

  • While potential tax law changes are making headlines, those proposals may face steep obstacles to becoming law.
  • There are tax-planning strategies to consider throughout the year, like maximizing deductions and using tax-smart investing strategies.
  • A tax advisor and financial professional can help you build a tax-smart investing plan that works for you.

While it's possible that 2022 could be a year for tax change, the tax proposals recently making headlines are likely to face steep challenges in Congress. But whether or not change comes this year, there are still plenty of moves to make to potentially help save on your 2022 return and set yourself up for potential tax savings in the future as well.

Here are 3 key things to consider.

1. Look for tax savings

While savers often wait until the tax deadline to make contributions to an IRA or health savings account (HSA), remember that you can also make these contributions throughout the year. Contributions to a traditional IRA or HSA may reduce your current taxable income, as long as you are eligible to contribute and to take a deduction. You can also make a Roth IRA contribution and have potentially tax-free gain on any growth in the account, if you meet the income requirements and follow the distribution rules.*

Note: the IRA contribution limit for 2022 is $6,000 ($7,000 if you're over 50) per individual, with Roth contributions subject to an earnings cap. If you are eligible to contribute to an HSA based on your health plan, contribution limits are $3,650 for individuals and $7,300 for families for 2022, with $1,000 more in catch-up contributions for those over 55. Contributions for either type of account are by tax year, so even if you made contributions for 2021 just recently, there's no need to wait to make your 2022 contributions.

You can also potentially reduce your tax burden if you take the time for some thorough bookkeeping to make sure you're claiming all the deductions and credits that you can.

One potential area for adjustment, given that remote work may be here to stay for many workers, is to take a close look at your residency. If you are still working remotely in a different state from where you usually work, you may want to take a deeper look at your residency options and make a long-term decision about the best choice for your situation.

You might also want to consider year-round tax-loss harvesting where you use realized losses to offset gains. If you've got investments that are below their cost basis, and there's another investment (but not a substantially identical security), you could use it to replace the sold asset without a material impact to your investment plan. Consult your tax advisor about your situation and beware of the wash-sale rule.

2. Put your savings to work

If you were able to sock away extra savings in the last few years, you may want to put those dollars to work for you with tax-efficient investing and charitable giving plans.

On the savings side, if you have children, grandchildren, or are considering further education for yourself, consider contributing to a 529 college savings plan, where any growth accrues potentially tax-free. Note that these accounts come with various requirements and restrictions, so it makes sense to look into it ahead of time.

If you have money to donate, you have many strategies to consider for the 2022 tax year. You can't take a deduction for most charitable contributions while also claiming the standard deduction. However, if you itemize, you generally are able to claim a portion of your donation as a deduction. It may make sense to try to bunch your charitable donations into a single year to maximize your potential deduction, and you could create a plan to do that for 2022. (Try Fidelity's calculator to determine the potential impact bunching donations may have on your taxes.)

3. Do a checkup

Doing a financial checkup periodically throughout the year, can help you to pay the right amount of taxes as you go. The IRS has a handy tool to help taxpayers check their federal income tax withholding. Consult your state tax authorities to check your state tax withholding.

Bottom line

Tax planning is not a one-and-done exercise. To help reduce taxes, it makes sense to be planning throughout the year. Need help? A tax advisor and financial professional can help you build a tax-smart investing plan that works for you.

Next steps to consider



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