End of the Year Tax Preparation Tips
The end of the year is almost here, and with that, a new season is on the horizon: tax season. Now is a great time to get your taxes in order so here are a handful of tips and rule changes to help you prepare before the new year.
Taxpayers should check if their tax withholding is 100% accurate
In the world of taxes, there are good surprises and bad surprises. In order to avoid unwanted or unnecessary surprises, people should review their tax withholding. The IRS talks about this in greater detail in this article.
Gather all required forms
Collecting your tax documents is an important first step to filing your tax returns. These records include W-2s, 1099s, receipts, canceled checks and other income documents.
Contributing to tax-advantaged accounts
Contributions to a 401(k), 403(b), or a health savings account could potentially lower your taxable income for 2022 and increase the assets you have available for future retirement and medical expenses. You should review your contributions before the end of the year to ensure you’re taking full advantage of the limits for these accounts.
Qualified charitable distributions
If you are age 70½ or older and have an IRA, you may want to consider making direct transfers of up to $100,000 from your IRA to qualified charities. This could potentially reduce the amount of required minimum distributions. Direct transfers do not increase your Adjusted Gross Income (AGI), which means they will not adversely affect your itemized deductions, Medicare premiums, or Social Security benefits.
Student loans may be deductible
Student loan interest may be deductible up to $2,500 even if you don’t itemize. If you’re still in college or continuing your education, you can potentially reduce your tax burden by thousands of dollars by seeing if you’re eligible for the American Opportunity Tax Credit or the Lifetime Learning Credit.
The standard deduction increased slightly
After an inflation adjustment, the 2022 standard deduction increases to $12,950 for single filers and married couples filing separately and to $19,400 for single heads of household, who are generally unmarried with one or more dependents. For married couples filing jointly, the standard deduction rises to $25,900.
Itemized deductions remain mostly the same
For most filers, taking the higher standard deduction is more practical and saves the hassle of keeping track of receipts. See a list of itemized deductions and how they’ve changed in this article.