Year-End Tax Tips for 2022

 

Tax-deferred Savings

The 2022 limit for elective deferrals to employer retirement plans (401(k), 403(b), etc.) is $20,500. If you’re over age 50 by the end of 2022, your limit is $27,000. These contributions can reduce your taxable income and investments in retirement accounts that are more tax efficient over the long-term. Contact your payroll department to make sure you reach the limit by the end of the year. If you think that your income is going to be lower than average, consider switching to Roth 401(k) contributions, which do not give you a tax deduction but future Roth 401(k) withdrawals will be tax-free.

Charitable contributions and itemized deductions

Many people make contributions to charity around the end of the year. However, after recent tax law changes, fewer taxpayers need to itemize deductions and their charitable contributions provide less of a tax benefit. A donor-advised fund can help you increase the tax benefit of the charitable giving that you are already doing. You receive a deduction for contributions to a donor-advised fund and you can invest the money until you decide when to distribute it to a charity. Contact Griffin Black by the end of November if you would like to learn more about setting up a donor-advised fund this year.

Low-income year

If your income this year is lower than average, there may be ways to take advantage of lower tax brackets now and reduce your lifetime taxes. Your advisor can help you evaluate the potential tax benefits of doing Roth conversions or recognizing capital gains.

Annual gifting limit

For 2022, you are allowed to gift $16,000 of assets per recipient without it counting against your lifetime estate tax exemption. For a married couple, each spouse has their own gifting limit. Making annual gifts could reduce your future estate taxes. You can also pass along capital gains on appreciated property to a recipient with a lower tax rate. Contributions to 529 plans count against your annual gifting limit. Contact your Griffin Black advisor to learn more about gifting strategies.

Incentive Stock Options

Incentive stock options (ISOs) are a valuable employment benefit, but they have complicated tax implications. There are tax-saving ISO exercise strategies that span the end of one year and the beginning of the next. If you are thinking about exercising highly appreciated ISOs, contact your Griffin Black advisor to evaluate the investment and tax considerations.

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