11 Last-Minute Tax Tips for 2022 Returns
If you haven't filed yet, check out this important tax guidance
Tax Day falls on Tuesday, April 18 this year and there's not much time left for procrastinators who've yet to file their 2022 tax returns. But there is time to lower your 2022 taxes and avoid missing out on write-offs you're entitled to claim.
Here are 11 last-minute tax tips to help:
Fund a 2022 Traditional or Roth Individual Retirement Account (IRA) if you had employment income or, if you were self-employed, a Simplified Employee Pension (SEP) IRA or a Solo 401(k) retirement plan.
You're allowed to contribute to these, through financial services firms, as late as April 18, though self-employed people who want to save with Solo 401(k)s need to have opened them by Dec. 31, 2022.For a Roth IRA, your income had to be under $144,000 if you were single, below $214,000 if you were married.
With each of these retirement accounts, your earnings grow tax deferred; withdrawals are taxable for Traditional IRAs, SEP IRAs and Solo 401(k)s but tax-free for Roth IRAs and Roth Solo 401(k)s.
An HSA lets you stash pre-tax cash to pay future medical expenses, health insurance deductibles and co-pays.
You can put as much as $6,000 into a 2022 Traditional IRA ($7,000 if you're 50 or older); those limits are reduced for Roth IRAs based on income. You're allowed to put up to $61,000 of self-employment income in a 2022 SEP IRA or a sole proprietor Solo 401(k); $67,500 for a Solo 401(k) if you're 50 or older.
Put money in a 2022 Health Savings Account (HSA) if you're eligible. Like those retirement plans, you're allowed to fund these for 2022 until Tax Day. An HSA lets you stash pre-tax cash to pay future medical expenses, health insurance deductibles and co-pays. The money in the account grows tax deferred and withdrawals are tax-free.
For 2022, you can contribute and deduct up to $3,650 for an HSA for yourself and up to $7,300 for family coverage.
"The HSA is the best thing since sliced bagels," said "Friends Talk Money" podcast co-host Pam Krueger on its recent tax tips episode. (Full disclosure: I'm a co-host, too, along with personal finance journalist and author Terry Savage.)
Know whether you'll be able to itemize deductions on your 2022 tax return. Odds are, you won't because you wouldn't have enough in write-offs to exceed the now sizable standard deduction.
For 2022, the standard deduction is $12,950 if you're single and $25,900 if you're married filing jointly. If you were 65 or older last year, or blind, your standard deduction is $14,700. It's $28,700 if you and your spouse were 65 or older.
Take any "above the line" deductions you can. Kelly Phillips Erb, a Forbes staff writer focusing on taxes, recently wrote she has found that taxpayers tend to "under-deduct," and miss out on write-offs.
Even if you can't claim things like property taxes, sales taxes, a home equity line or charitable contributions because you won't itemize, you may be able to claim what are called "above the line" deductions. (The $600 charitable contribution that donors could make on 2021 returns if they didn't itemize is gone for 2022 returns; pandemic tax credits for children and child care are also back to pre-pandemic levels.)
In addition to the above-the-line IRA and HSA contributions noted earlier, others include up to $2,500 in student loan interest you paid for yourself or your child (if your income was under $85,000 and you were single or $170,000 and married); health insurance if you were self-employed and possibly business expenses if you were self-employed.
Don't miss out on tax credits for making your home more energy efficient in 2022. There's a 30% credit for buying and installing solar panels, solar-powered water heaters and geothermal heat pumps.
One piece of good news: For 2022, Congress reinstated an energy-improvement tax credit of 10% of the cost of things like insulation and energy-efficient doors and windows, with a $500 lifetime cap. You claim these using Form 5695.
Claim college education tax credits for courses you took last year. There are two types: The American Opportunity Tax Credit for undergraduate education and The Lifetime Learning Tax Credit for undergrads and grad school. You claim them on Form 8863.
If you worked remotely in 2022 and your employer was in another state, find out what those states' tax rules are for the income you earned.
The American Opportunity Tax Credit is as much as $2,500 and The Lifetime Learning Tax Credit is up to $2,000. The full credit for both is allowed for singles with income under $80,000 and married couples under $160,000; the credit can't be claimed if your income was $90,000 or more, $180,000 or more if you were married.
Take a tax credit of up to $7,500 for the cost of an electric vehicle you bought last year, if the car or SUV qualifies. Those rules are tricky.
It had to be a new all-electric or plug-in hybrid, and ones from Tesla and GM aren't eligible because those companies sold more than the limit of 200,000 models in 2022.
If you got the car or SUV between August 17 and December 31, its final assembly must have been in North America, too, in order to claim the credit. (The Department of Energy has a list of those models.)
If you worked remotely in 2022 and your employer was in another state, find out what those states' tax rules are for the income you earned. The tax implications vary from state to state. Some states give credits for taxes on wages paid to other states; others do not.
Crypto investors: Be ready to tell the Internal Revenue Service (IRS) about this on your tax return. There's now a line in big bold letters called "Digital Assets," asking whether you received or sold a digital asset such as crypto or an NFT (non-fungible token).
If you sold any and made a profit in a taxable account, you'll need to pay taxes on your short-term or long-term gains using Form 8948 and Schedule D. If you sold for a loss, you could claim that and perhaps offset some taxable gains.
Prepare for an unpleasant surprise if you owned an actively managed stock mutual fund last year. Some investors will owe capital-gains taxes due to shares the fund sold in 2022. That can be frustrating news considering that most stock funds lost money last year.
"This is a great argument for owning index funds, which don't tend to do this," said Krueger.
If you want to call the IRS for help, be patient. The CPA Trendlines Busy Season Barometer says tax practitioners' main concern this year is "IRS operations."
Last year, 87% of taxpayers calling the IRS' phone lines couldn't get through. Ones who did spent 29 minutes, on average, on hold.
Since then, however, the IRS has hired 5,000 customer service reps. U.S. Treasury Department officials hope that 85% of callers to the IRS will be able to speak to a live person this year.