It’s not too late to reduce your 2022 tax bill. While the deadline for most tax-saving moves has passed, there are still a few things you can do to lower your tax burden before the end of the year. Here are some last-minute strategies to consider.
Contribute to a Traditional IRA or 401(k)
If you haven’t maxed out your contribution to a traditional IRA or 401(k) for 2022, you have until the tax filing deadline (usually April 15th of the following year) to do so. Contributions to these accounts are tax-deductible, which means they can reduce your taxable income. For example, if you’re in the 22% tax bracket and you contribute $5,000 to a traditional IRA, you could save $1,100 in taxes.
Make Charitable Donations
Charitable donations are also tax-deductible, so if you plan on making a charitable contribution, consider doing it before the end of the year. Donations of cash, securities, or other property to qualified charitable organizations are deductible on your tax return. Keep in mind, however, that you’ll need to itemize your deductions to claim a charitable contribution.
Defer Income
If you’re self-employed or have the flexibility to defer income, consider holding off on receiving payment until early next year. This can help lower your tax bill for 2022 by shifting income from a higher tax bracket to a lower one. Just be sure to consult with a tax professional before making any decisions about deferring income, as there are rules and restrictions that apply.
Pay Your Taxes Early
If you’re expecting to owe taxes when you file your return, consider paying as much of your tax bill as possible before the end of the year. This can help you avoid underpayment penalties and interest charges, which can add up quickly. You can also set up a payment plan with the IRS if you’re unable to pay your entire tax bill at once.
Consider Selling Loser Investments
If you have investments that are worth less than what you paid for them, you may be able to claim a capital loss on your tax return. Capital losses can be used to offset capital gains, which can reduce your tax bill. Just be sure to follow the IRS rules for claiming capital losses, which can be complex.