The overall economy during 2022 seemed even more unpredictable than during the past couple of turbulent years. Thus, even people who pride themselves on advanced planning may need to make changes. On the positive side, a qualified financial advisor still has time to offer some excellent 2022 year-end tax planning tips.
Can You Deduct Stock Losses From Taxes?
Equity investors struggled with declining stock prices for almost all of 2022. Long-term investors may want to hold and wait for the market to change course. At the same time, some investors could consider tax-loss harvesting by selling at a loss by the year’s end.
The IRS lets taxpayers offset up to $3,000 in yearly gains with stock losses. The government imposes complex rules about buying the same stocks and carrying losses over multiple years, so prudent investors will want to discuss their strategy with a financial professional.
Can You Deduct Charitable Donations?
Taxpayers may deduct donations to qualified charities. At the same time, the government treats these as below-the-line deductions. In other words, you need to have enough deductions to itemize to use these losses to offset income. Otherwise, you will choose the standard deduction.
You may still want to donate to good causes. Still, you could speak with an advisor about potential above-the-line deductions, like contributions to retirement and health savings accounts.
Should You Begin Roth Conversions?
You can convert some of your tax-deducted retirement accounts to a Roth. You will need to pay taxes for converted funds, but the government won’t tax you on your past contributions or future earnings when you make qualified withdrawals. Your financial professional can help you determine if this strategy will save you money in the long run.
Do You Need to Worry About RMDs?
The government offers tax-advantaged accounts to encourage people to save for retirement, but they only temporarily allow taxpayers to avoid taxes. The IRS imposes required minimum distributions (RMDs) on holders of certain retirement accounts after reaching a specific age.
Failure to withdraw the minimum each year can result in substantial penalties. At the same time, withdrawals may generate extra tax bills and even move account holders into higher tax brackets. Taxpayers can speak with their financial advisors about ways to help minimize the burden.
Should You Consider More Tax-Efficient Investments?
You shouldn’t just consider taxes with the highest returns. Instead, you should also find out how much of your returns you can keep after paying taxes. Your financial professional could suggest tax-managed ETFs, stocks or ETFs with qualified dividends, and government bonds that can help reduce your tax burden.
It’s Not Too Late for 2022 Tax Planning
This list of year-end tax planning questions covers several important topics. Still, it can offer a substitute for bespoke advice from a qualified financial advisor. At Bestgen Wealth Management, we’re here to answer your questions.