Start Your Planning Now!

As we dive into this festive season (ho, ho, ho!) and gear up to welcome the promising horizon of a new year, it’s the perfect time to engage in thoughtful reflection and financial preparation. Year-end tax planning isn’t merely a last-minute affair; like estate planning, tax planning is a series of deliberate steps. The key to both is to plan ahead. Failing to plan can lead to unforeseen challenges and complications. Your loved ones deserve better. A well-crafted estate plan safeguards your assets, allows you to make your own choices, ensures your planning is honored, your loved ones are provided for, and can help minimize taxes on your estate. Without estate planning, the distribution of your assets will be subject to the legal system and its complexities, could cause family disputes and conflict, as well as higher tax liabilities. Protecting your legacy and ensuring your loved ones are well cared for requires both careful financial and estate planning which you can put in place now. Taking proactive steps now will save you money, provide invaluable protection for your loved ones and give you peace of mind right away.

To assist you in starting your planning now, below are five actions you can initiate right away to pave the way for tax savings in 2023:

Don’t Let The Online Spooks Haunt You!

It has been exciting to welcome all things fall recently. However, this email is about things that may haunt you and cause you difficulties and suffering. So, pardon me if I get a bit more serious this go-round, as October is Cybersecurity Awareness Month. In our world, where many aspects of our lives are tied to our computers and online connection, our online safety has become more significant. Around the globe this month, a month-long campaign is waged to raise awareness about the ever-evolving cyber threats and the crucial measures individuals and organizations need to take to protect themselves against these risks.

Below are five easy tips to help keep you, your family, and your information safe online. I know you are busy. I know it is not easy. I know you think you have better things to do with your time. I also know innocent people, like you and me, who have been victims of cybercrime. Given what scammers and con artists can take from you if they get into your cyber world, the time and effort you take NOW can save you much more time, energy, money, and damages tomorrow.

Now is the Time to Act

Tax-Saving Strategies For 2022

Although the end of the year can be hectic, it’s also the deadline for you and your family to implement several key tax-savings strategies. By taking action now, you may be able to reduce your tax bill due in April significantly. But you must do this before the end of the year, so act fast.

While there are dozens of potential tax breaks you may qualify for, here are 4 of the leading moves you can make to save big on your 2022 tax return.

1. Maximize retirement account contributions

By maximizing your contributions to tax-deferred retirement accounts, such as IRAs and 401(k)s, you can save for retirement and reduce your taxable income for 2022.

In 2022, you can contribute up to $6,000 to an IRA, up to $20,500 to a 401(k) if you’re under 50, and up to $7,000 to an IRA and $27,000 to a 401(k) for those 50 and older. If you don’t have the cash available to fund the maximum amount, contribute at least any amount that your employer will match since that’s basically free money, and you lose it if you don’t use it.

That said, the ability to deduct your traditional IRA contributions from your taxes comes with certain limitations. These limitations are based on factors such as whether or not you or your spouse are covered by a retirement plan at work and your adjusted gross income (AGI), so make sure you know how your family is affected by these limits when taking deductions. On the other hand, Roth IRA contributions are not tax-deductible since they are made after taxes are taken out, but withdrawals from a Roth in retirement are tax-free.

Additionally, consider maxing out your Health Savings Account (HSA) contributions. Contributions to HSAs for 2022 are capped at $3,650 for individuals and $7,300 for families, with an additional catch-up contribution of $1,000 allowed for those aged 55 and older.

You have until December 31st, 2022, to contribute to a 401(k) plan and until April 18th, 2023, to contribute to an IRA or HSA for the 2022 tax year.

2. Defer income if you’ll make less next year

If you’re expecting to make significantly more income this year than in 2023, try to defer as much income into next year as possible. However, this strategy only makes sense if you’ll be in the same or a lower tax bracket next year.

On the other hand, if you think you’ll be in a higher tax bracket in 2023, you may want to do the opposite and accelerate income into 2022 to take advantage of a lower tax bracket.

3. Use “loss harvesting” to offset capital gains

With the stock and crypto markets down this year, it can be the ideal time to use a strategy called “loss harvesting.” This means selling taxable investment assets (such as stocks, mutual funds, and bonds) at a loss to offset any capital gains you may have realized earlier in the year. Capital losses offset capital gains dollar for dollar.

If your losses exceed your gains, you can write off up to $3,000 of collective losses against other income. Any losses in excess of $3,000 can be carried over into the following year. In fact, you can carry over such losses year after year over your lifetime.

Note that the loss harvesting strategy does not apply to tax-advantaged accounts, such as 401(k)s, IRAs, and 529 plans. Additionally, the IRS “wash-sale” rule prohibits using this tax write-off for buying a “substantially identical” asset within a 30-day window before or after the sale that generated the loss.

Always consult your CPA or financial advisor before employing loss harvesting to ensure it doesn’t backfire on you.

4. Watch your required minimum distributions (RMDs)—or ensure your parents are watching theirs—if you or they are over age 72

If you have an employer-sponsored retirement plan, including a 401(k), 403(b), traditional IRA, SEP IRA, or SIMPLE IRA, you must start taking required minimum distributions (RMDs) by April 1st of the year that follows

the year you turn 72. After that, annual withdrawals must be made by December 31st each year to avoid a severe penalty.

If you fail to take the proper RMD, you may face a 50% excise tax on the amount you should have withdrawn based on your age, life expectancy, and account balance at the beginning of the year. That said, if you do make a mistake, you may be able to avoid the penalty by requesting a waiver from the IRS. You can request a waiver if your failure to take the RMD is due to a reasonable error and you take steps to make the required distribution. To request a waiver, submit Form 5329 to the IRS with a statement explaining the error and the steps you are taking to correct it.

Note that in 2022 the IRS updated its uniform lifetime table to calculate RMDs to account for longer life expectancies. As a result, your RMDs for this year may be slightly lower compared to previous years. To determine your RMD, refer to the IRS RMD worksheet or use an RMD calculator.

Maximize Your 2022 Tax Saving

There you have just four year-end tax-saving strategies that could save your family thousands of dollars on your 2022 tax bill. But DO IT NOW, as the end of the year will be here before you know it.

How To Save Big Money On Your 2022 Taxes

When you first realize that your most significant personal and business expense—bar none—is taxes, it can come as quite a shock. Seeing so much of your hard-earned money wind up in the government’s hands can feel like a shakedown. That said, spending a relatively small amount of time and effort strategically reducing your taxes can pay major dividends.

Some people resist implementing creative tax strategies because they’re worried it will get them in trouble with the IRS. However, as long as you do things correctly, there’s absolutely nothing illegal or risky about strategizing to pay the least amount of taxes possible.

On the other hand, it is illegal to evade taxes. As the late Martin Ginsburg, Georgetown Law professor and husband of the recently deceased Supreme Court Justice Ruth Bader Ginsburg, said, “Pigs get fat; hogs get slaughtered.” In other words, you want to be smart when it comes to saving on your taxes but not greedy.

As the end of 2022 approaches, we’re entering the most critical time of the year for tax strategy, and this two-part series outlines how you can get fat without getting slaughtered.

PREPARE YOUR FOUNDATION

To save big on your 2022 taxes, your first step should be either building or rekindling your relationship with your team of financial professionals. These individuals will support you in establishing the foundation for developing and implementing your tax-saving strategies. At the very least, this team should include your Business lawyer, your bookkeeper/financial manager, and your tax advisor. They each have an essential role in your success.

If your bookkeeper’s job is more about data entry than financial management, you should look for someone new—or quickly get your current staff trained and up to speed. An effective bookkeeper will manage your books on a week-to-week basis (if not daily, depending on your business). Note I said “week-to-week,” not just month-to-month or quarter-to-quarter.

Your bookkeeper’s primary responsibilities should include daily/weekly cash-flow management, monthly review of reports and categorization of expenses, and quarterly updates of your forecast and projections. Again, if your bookkeeper isn’t providing these types of services for you, your business is missing an essential part of its financial foundation. 

Outside of your bookkeeper, your tax advisor is the person who files your taxes. Ideally, you should meet with your tax advisor AT LEAST twice a year. We encourage you to meet once in May/June (after tax season) and once when approaching the year’s end in October/November. If you haven’t done that, DO IT NOW!

The purpose of the May/June meeting is a general catch-up and mid-year review that lets your tax advisor know what you’re financially on track to do for the year. Then, your advisor can consider the most effective tax strategies based on that information.

When you meet again (NOW) in October/November, that is when you’ll really get down to business. This meeting is when you’ll project cash flow through the end of the year and get a tax estimate using different assumptions, both with and without tax-saving strategies.

If your tax advisor cannot provide this level of service and is merely a tax filer, it’s time to get a new advisor. Your tax advisor should communicate with your business attorney to ensure that your financial strategies are supported with the legal tools and systems necessary to tie it all together and ensure it works properly.

PUTTING YOUR STRATEGIES INTO PLAY

Next week, we’ll discuss how to develop and implement creative tax strategies that will enable you to keep more of your money in your hands rather than the government’s.