Year-End Tax Planning Moves for 2022

It may be months before you need to file your 2022 taxes (the deadline for filing is Tuesday, April 18, 2023; mark your calendar), but this is exactly the right time to make smart moves to lower your 2022 taxes. If you wait beyond December 31, it'll generally be too late.

While this has been a pretty miserable year for the stock and bond markets and inflation, it's a good one for year-end tax cutting.

A report by Wolters Kluwer, the international publishing and professional services company, found that "the tax world has largely stabilized since the passage of the Tax Cuts and Jobs Act in 2017. This has made year-end planning more predictable."

As my Friends Talk Money podcast co-host Pam Krueger said in our recent episode on year-end tax tips, "year-end is just a natural time to pause and just assess and review everything, taxes included."

Here are suggestions to trim your 2022 tax bill (before making any of these moves, consult with your tax adviser):

You'll want to first estimate your tax bracket for 2022 and 2023 so you can see which year it'll likely be higher and then make tax moves accordingly.

For example, if you expect to be in a higher tax bracket in 2023, you may want to try pushing anticipated 2023 income into 2022 and postpone making some tax-deductible expenses until next year, when they'll be more valuable to you.

Conversely, if you think you'll be in a lower tax bracket next year, you may want to do the reverse — push anticipated 2022 income into 2023 and pay tax-deductible expenses this year, when they'll be worth more to you.

Keep in mind, though, that because inflation has been so high, the Internal Revenue Service (IRS) announced a 7% inflation adjustment to the 2023 income tax thresholds. (Consider this one of only two good things due to high inflation; the other is the 8.7% Social Security cost-of-living adjustment in 2023.)

In other words, if your income will be the same in 2023 as in 2022, you may be in a lower tax bracket next year because of the inflation adjustment. For example, a married couple with $85,000 in income will be in the 22% tax bracket this year, but just the 12% bracket next year.

Before looking for last-minute deductible expenses for 2022, determine whether you'll be able to itemize deductions on your tax return. If your deductions wouldn't exceed $12,000 and you're single or $25,900 and you're married, they'd be too low to claim.

But if you will be able to itemize, look into prepaying 2023 property taxes and state and local income taxes, which have a $10,000 limit. You could look into paying unreimbursed medical expenses for a write-off, too, though they're only deductible after exceeding 7.5% of your income.

You can also try grabbing tax credits; they have no threshold for itemizing. One example is the $2,500 to $7,500 tax credit for buying certain new electric vehicles from manufacturers such as Audi, Chrysler, Ford, Jeep, Nissan and Volvo. There's also the Lifelong Learning tax credit for educational expenses (maximum credit: $2,000) if your income is under $90,000 and you're single or below $180,000 and you're married.

If your employer offers a tax-sheltered retirement plan like a 401(k), you still have time to stuff money into it for 2022 and lower your taxable income. The maximum contribution for 2022 is $20,500, or $27,000 if you're 50 or older.

You have until Tax Day 2023 to make Individual Retirement Account (IRA) contributions for 2022, but you must have opened the IRA account this year or earlier.

Many investors lost money in stocks, bonds, mutual funds and exchange-traded funds (ETFs) this year. If you sold holdings for a loss, you could offset the loss against capital gains on investments you sold at a profit. Up to $3,000 in losses exceeding gains can be claimed to lower your 2022 income.

This is the time of the year when some mutual funds and ETFs have capital gains distributions — taxes owed on profits taken. You can find the date of planned distributions on a fund's website or, for big fund companies such as Fidelity, T. Rowe Price and Vanguard, or on the Morningstar site.

"Don't buy a fund the week before it issues a capital gains distribution because then you're going to be taxed on the distribution," advised Terry Savage, the author of several books on personal finance.

If you plan to make a gift to a child or grandchild before year's end, remember that you're allowed to give up to $16,000 per person in 2022 ($32,000 for couples) without owing gift taxes. Putting money into a child's 529 college savings plan will lower your state taxes if you live in one of these 30 states.

Since it's so hard to have enough deductions to itemize, if you want to write off charitable contributions, you may want to try bunching them.

That means doubling up this year the amount of donations you'd otherwise make in 2022 and 2023 combined so their total in '22 will exceed the standard deduction and qualify for an itemized deduction.

Richard Eisenberg is the former Senior Web Editor of the Money & Security and Work & Purpose channels of Next Avenue and former Managing Editor for the site. He is the author of "How to Avoid a Mid-Life Financial Crisis" and has been a personal finance editor at Money, Yahoo, Good Housekeeping, and CBS MoneyWatch. Read More