2022 Tax Savings Ideas
As we recently passed the tax filing deadline on April 18th and hopefully most of you have finished your 2021 tax returns, it is time to focus on ways to reduce your 2022 tax bill – even those of you that filed for an extension. Let’s talk about some ways that you can reduce that tax bill for the 2022 tax year:
Increase your contributions into your 401(k) Plan - For those of you who are still working and having earned income, you can contribute money to a 401(k) or another employer sponsored retirement plan. Contributions into the 401(k) plan are made with pre-tax contributions – which will bring your taxable income down. In 2022, the contribution limit for a 401(k) is $20,500, with an additional $6,500 available for those 50 and older.
Contribute to a Health Savings Account. A Health Savings Account (HSA) is a medical savings account designed for taxpayers with a high-deductible health plan (HDHP) to save for upcoming health care expenses. This account is known by some as the ‘triple tax advantage’ as funds go in tax-free (or tax-deductible if you opened your own account), can grow tax-free by investing the balance and be withdrawn tax-free at any time if used for qualifying medical expenses — things like deductibles, copays and coinsurance. These three tax advantages each help reduce your tax burden. Plus, your HSA balance, if not entirely used, will roll over from year to year. The limits of pre-tax funds contributed to an HSA for 2022 are $3,650 for a single person and $7,300 for a family, plus an additional $1,000 if you’re 55 or older.
Fund an FSA account - The IRS lets you funnel tax-free dollars directly from your paycheck into your FSA every year, so if your employer offers a flexible spending account, you might want to take advantage of it to lower your tax bill. In 2022, the limit is $2,850. You’ll have to use the money during the calendar year for medical and dental expenses, but you might also be able to use it for related everyday items such as bandages, pregnancy test kits, breast pumps and acupuncture for yourself and your qualified dependents. Some employers might let you carry money over to the next year as well.
Fund a Dependent Care FSA — if your employer offers it. For the 2022 tax year, the IRS will allow for the exclusion of up to $5,000 of your pay that you have your employer divert to a dependent care FSA account, which means you’ll avoid paying taxes on that money. That can be a huge win for parents of kids under 13, because before- and after-school care, day care, preschool and day camps usually are allowed uses.
Keep track of your charitable contributions - Charitable contributions are deductible, and they don’t even have to be in cash. If you’ve donated clothes, food, old sporting gear or household items, for example, those things can lower your tax bill if they went to a bona fide charity and you got a receipt. For the 2022 tax year, you may be able to deduct $300 per person (those married filing jointly can deduct up to $600) on your tax return without having to itemize.
These are just several ways to reduce your 2022 tax burden. We also recommend consulting your tax professional for more ways to save money as each situation is unique and there are too many to mention in this article. Please call or email our office if you want to discuss your tax situation particular to your accounts. Also, if you would like to contribute to a Roth IRA (tax free income at retirement) and your income was too high to contribute, please call us for some possible solutions!