5 Year-End Tax Planning Tips
As 2022 comes to a close, it’s time to start thinking about year-end tax planning and taking the actions necessary to help minimize your tax burden. If you use the correct strategies, you can free up cash for your business or personal life. Here are a few financial strategies that can help you manage your cash flow and meet your financial obligations for the year.
1. Income Tax Deductions
Income tax deductions can be accumulated throughout the year and used as write-offs when it’s time to file taxes. Some last-minute deductions to lower your tax bill include:
- Charitable contributions
- Medical and dental expenses (if exceeding a percentage of your income)
- Business expenses
- Qualified mortgage interest
2. Income Deferral
Deferred income is an additional compensation to your salary you receive, but have not yet paid out. Examples of income you can defer include year-end bonuses, investments, and retirement plans. For business owners, another tax planning tip to defer income is to delay billing your clients or renters until late December. That way, your revenue will be received in the following year. The purpose of this strategy is to lower your taxable income and possibly place you in a lower tax bracket, lowering the amount of taxes owed.
3. Max Out Retirement Account Contributions
Retirement accounts compound over time without incurring taxes, making them great investments for the future and perfect opportunities to defer your taxes. By maxing out your retirement account contributions before the end of the year, you will lower your taxes while making a valuable future investment.
- Employer-Sponsored 401(k) or 403(b): If possible, contribute your maximum allowable amount. For the current tax year, it is $20,500 up to age 49 and $27,000 for ages 50 or above.
- Individual Retirement Account (IRA): The first contribution must be made before April 18, 2023, and you can contribute a maximum of $6,000 up to age 49 and an additional 1,000 for ages over 50.
- Keogh Plan: A plan for self-employed people who can make contributions before the tax filing deadline. It allows for a higher contribution amount than a standard IRA based on the type of plan you choose.
4. Use Up Your Flexible Spending Account
A Flexible Spending Account (FSA) is set up through your employer, who sets aside a portion of your paycheck into a special account to be used for your medical expenses. The money in your account is tax-deferred and can be used to lower your taxable income. Since you will be taxed on any amount left over in your account by December 31st, make sure to schedule as many appointments and check-ups by the end of the year as necessary to use up every bit that you can. Unlike Health Savings Accounts (HSAs), FSA funds do not carry over to the following years.
5. Property Tax Financing
Oftentimes, property taxes can be forgotten during the holiday season and can cause financial burdens going into the following year. Instead of letting this happen, stay aware of your property tax due dates and incorporate your property taxes into your end-of-the-year budget. This will help balance your personal cash flow and leave you with little to no financial surprises. It is also helpful to explore the available options for paying your property taxes.
However, if you fall short, Johnson & Starr can help. Our property tax loans are customized to fit your unique situation and can be flexible to adapt to nearly any loan requirement. Don’t miss your Texas property tax deadline of January 31st, and risk falling delinquent on your taxes. Contact us today to get started.