Take A Bite Out of Your Tax Bill
by Susan Kaplan
Medical tax provisions adjusted in 2022 for inflation: For the 2022 tax year, you can put up to $2,850 in your F.S.A. That's a $100 increase from 2021's $2,750 F.S.A. contribution limit. The rollover amount goes from $550 in 2021 to $570 in 2022. As far as an H.S.A. goes for 2022, the self contribution is $3650, and for a family it is $7300. There is a $1000 "catch-up" if you are 55+.
Standard & itemized tax deduction inflation changes for 2022 tax year: Effective tax planning means knowing how your current tax year’s circumstances might be different in the one ahead. Comparing the numbers helps you determine if you should postpone some earnings into 2022, where the income tax brackets are a bit wider, so you won’t be bumped into a higher one on your 2021 return. And what about deductions? It could be better, based on the current and next year’s standard amounts, for you to shift some deductible tax expenses from this year into the next or vice versa and itemize. HERE's a sneak peek.
IRS announces changes to retirement plans for 2022: The contribution limit for employees who participate in 401(k), 403(b), and most 457 plans, is increased to $20,500. Limits on contributions to traditional and Roth IRAs remains unchanged at $6,000. Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If neither the taxpayer nor their spouse is covered by a retirement plan at work, their full contribution to a traditional IRA is deductible. If the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced or phased out until it is eliminated.
Bunch your expenses to make tax itemizing worthwhile: Bunching is when you gather enough allowable expenses so that they total enough dollars to exceed your standard amount. Essentially, you bunch them together into one tax year. So instead of giving to your favorite charity every year, double up in one year when you're close to making itemizing worthwhile. You can pull expenses into this tax year, but bunching also works when you push, too. If you have control over an expense that would go to waste in one tax year, push it into the next one. You can alternate years of claiming the standard deduction and itemizing and are not locked into an irrevocable deduction election. You and your Fuoco tax professional should choose the method that gives you the best tax result each year.
Watch your thresholds: Pay attention to your Schedule A medical claims. This deduction requires you have enough allowable health care costs to exceed 7.5% of your AGI. This means that if your AGI is $50,000 you must have medical write-offs of more than $3,750. Don't miss any deductible medical expenses - add the cost of COVID-19 home tests to the medical write-off list. You have no control over when accidents happen or major medical treatments are needed, but if you can, schedule eligible medical expenses when beneficial and tax-efficient.
Capital Gains Harvest Season: The end of the tax year is a good time to evaluate your investments. In most cases, folks are looking at their assets to cut those that haven't done so well. By selling losers, or tax loss harvesting, you can offset any capital gains you've had in the tax year. If you have more losses than gains, you can use up to $3,000 of those excess bad investments to offset your ordinary income. Harvesting losses can help high earners reduce their NIIT amount. Beware the Wash-Sale rules, and be sure you understand basis, long term vs short term holding consequences, and more.