Double-down on These TAX STRATEGIES TO SAVE MONEY IN 2022
Everybody can save money on taxes. And to save money on taxes, you ought to implement tax strategies throughout the year. These strategies differ according to the type of taxpayer and lifestyle. However, you won’t know your own strategies until you start planning your taxes. So, you may as well take this as a call to start planning your taxes. And I can help you do that to perfection!
Nevertheless, what tax strategies can you implement between now and the end of the year to benefit on taxes? We will discuss them later, but first, you need to do the following.
Write down tax deductions and credits you can target or are eligible for
This is the crucial step that helps you identify areas you can target to save money on taxes. Suppose you own a home and are paying a mortgage. In that case, you should immediately know that you can deduct mortgage interest and property taxes.
More so, if you have a family and are paying their medical bills, you should also know that you can deduct the medical expenses you paid out of pocket.
The above examples are deductions that you can itemize. The list is long. With the help of a tax professional like me, you can plan your taxes throughout the year and identify as many deductions as possible to itemize.
Deductions reduce the income which the IRS taxes you. This is good, but there is also another better option to reduce your taxes. The good thing is you can take both itemized deductions and this option. This option refers to tax credits.
Tax credits are excellent because tax credits reduce your actual tax dollar for dollar. For example, if you owe $3,000 in federal taxes and claim $1,200 in tax credits, your total tax will be reduced to $1,800 ($3,000 – $1,200).
The above looks great, but you should start doing this now because the tax year 2022 is only months away from the end. If you want me to plan your taxes and help you itemize deductions, talk to me now. I am already taking tax planning clients.
However, the tax strategies listed below should also help you decide on the list of tax credits and deductions you should aim for.
1. Double down on your retirement contributions
Several taxpayers use tax-free retirement contributions to save money on taxes. You can contribute tax-free dollars to a 401(k) retirement plan or an Individual Retirement Account (IRA). Both will result in you benefiting twice – saving tax-free money and contributing more towards your retirement.
In 2022, you can contribute up to $20,500 into your 401(k), and if you are 50 or older, you can contribute up to $27,000; tax-free. 401(k) accounts are usually sponsored by employers, but self-employed people can open their own 401(k)s. More so, some employers will match your contributions.
On the other hand, IRAs are not employer-sponsored. There are two types of them; Roth IRAs and traditional IRAs. You can contribute up to $6,000 in 2022 to a Roth IRA, or $7,000 if age 50 or older. You can also contribute up to $6,000 in 2022 to a traditional IRA, or $7,000 if age 50 or older.
You can fund these accounts until the tax deadline for the previous year. For example, you will contribute for the tax year 2022 until April 15, 2023, the deadline for the 2022 tax season.
If you haven’t reached those figures, this is the time to devise a plan to max both your IRAs and 401(k) to save more of your money from taxes. You can set aside a specific amount per month until you reach those figures by each deadline.
2. Double down on CARE contributions
I decided to package some health contributions and dependent care accounts under this. Therefore, you should find out if your employer offers a Flexible Spending Account (FSA) or a Dependent Care Flexible Spending Account (DCFSA).
You can use the FSA for medical and dental expenses during the calendar year. You can contribute up to $2,850 to it in 2022. Maxing this amount will lower your tax bill because it is a deduction.
You can also deduct up to $5,000 that you contribute to a DCFSA. This is good news for parents who pay for after-school care, daycare, and preschool.
And finally, you can also contribute some money towards a Health Savings Account (HSA). This is a tax-free account you can contribute towards health expenses. Employers can offer this account, but you can start your own at a bank of your choice.
3. Hire your children
You can still hire your children and deduct their salary as business expenses. More so, the money you pay your child is tax-exempt, up to the standard deduction. The standard deduction for the tax year 2022 is $12,950 for single filers. You can also get my free copy of “5 Reasons to Hire your Child” to find out about other benefits of hiring your children.
4. Ensure you qualify for the child tax credit
Do you share custody with your ex-partner? If so, ensure that the total amount of days the child spent the night in your house amounts to six months. If not, you will not be eligible for this child tax credit. You can find out more about this tax credit, and if you are in a dispute with your ex-partner, and you don’t know what to do, you can talk to me about your taxes, including the child tax credit, to find out your options.
Frequently Asked Questions
- What are the popular tax management strategies?
Taxpayers use retirement contributions, charitable deductions, and medical and care deductions, among many deductions that itemizers choose. However, some taxpayers also choose to go for tax credits to further reduce their tax bills.
- How do small businesses reduce taxes?
Small business owners can hire their children and family members to save money on taxes. They can also track all business losses and write-offs. This may sound like an obvious deduction, but many small businesses do not keep track of all their expenses. Finally, hiring a reputable tax professional is the major key to unlocking tax savings.
- What are the 3 basic tax planning strategies?
The basic tax planning strategies are built around reducing your overall income, increasing your number of tax deductions throughout the year, and taking advantage of certain tax credits. The overall aim is to pay little to no taxes.
