Tax time will soon be here. The good news is that there still is time to reduce your taxes this year. Making changes now can help you get more tax deductions on your upcoming 1040 taxes.
Getting the biggest IRS refund means you need to have a lot of receipts for any tax deductions you want to claim. If you have not already done so, look at the various types of tax deductions available in your situation. Here are eight options you may want to consider.
1. Contribute to a Retirement Account
One of the best ways to reduce your taxes is to contribute to a retirement account. Some of these accounts allow you to deduct your contribution from your total income (pretax), and others require you to pay taxes on the money contributed.Each account has maximum contribution limits. An individual retirement account (IRA) or Roth IRA has a contribution limit of $6,000 if you are under 50, or $7,000 if 50 or older. The Internal Revenue Service says that this amount is the total you can contribute to all of your IRA accounts. You cannot contribute to a standard IRA beyond 70½.
Contribution limits for a 401(k) are a maximum of $20,500 if you are under 50. People 50 and over can contribute up to $27,000, which includes a $6,500 catch-up contribution.
Contributions for a 410(k) in 2022 must be made by the end of the year. In some cases, according to Investopedia, employers may delay matching contributions until their company’s tax time in the following year. IRAs are different. Contributions to an IRA can be made from January 1 until April 15 of the following year.
2. Consider a Health Savings Account
If you have a health savings account (HSA), the IRS says you can make contributions anytime between January 1 and April 15 of the following year.When your employer contributes to your HSA, you cannot deduct it because it has already been deducted and reported on your W-2. If you make the contribution, HRBlock says it is deductible.
3. Be Aware of Medical Expense Deductions
Many of your costs for medical care are deductible. The IRS is rather generous on this type of deduction, so if you have not already done so, you may want to undergo the medical treatments you want before the end of the year.TurboTax says that qualified expenses need to be unreimbursed, and the total must be more than the deductions you would have if you itemize. Oftentimes, the standard deduction is high enough to include the value of medical expenses.
Although you cannot deduct the cost of cosmetic treatments, you can deduct many medical procedures, and more. The deductible, unreimbursed expenses include preventative care, surgeries, treatments, eyeglasses or contacts, hearing aids, and false teeth. You also can deduct so much per mile traveling to medical offices.
4. Defer Your Income
Another way to reduce your taxes this year—if you are a freelancer or self-employed—is to delay your billing until closer to the end of the year. It would enable you to get paid in the new year.This strategy is only good if you do not anticipate making more money next year. It may also not be a good idea if, because it’s added to next year’s income, it puts you into a higher tax bracket.
5. Make Charitable Donations
Donations to qualified charities are always a good way to reduce your tax liability. Note that the IRS has some limitations on donations. The deduction can only be taken if you itemize on a Schedule A.There are two rules the IRS mentions for individuals concerning charitable donations. The first one is for cash donations: it cannot exceed 60 percent of your adjusted gross income (AGI). The second one is that non-cash donations are limited to 30 percent of your AGI.
Another smart strategy, mentioned by Schwab, is to make a direct contribution of stock. By doing so, you also reduce your liability for capital gains taxes.
According to Investopedia, you can deduct up to $300 in donations to qualified charities if you are single. Married people filing jointly can donate up to $600. These donations do not require you to itemize.
6. Retire Before the End of the Year
If you have been waiting for the ideal time to retire, you may want to do it before the year ends. When you stop earning new income, your tax liability is less. YahooFinance says that retiring before the end of the year may help you avoid any income-related monthly adjustment amount penalties from Medicare if your income in the last months puts you in a new bracket.Retiring (stop working) is one of the life-changing events listed on Medicare that may enable you to earn more in the year you retire without raising your Medicare premiums. It may make it the ideal time for you to make a conversion to a Roth IRA, because doing it in the same year as a life-changing event probably will not change your Medicare costs.
7. Harvest Your Capital Losses
If you have had a loss on your stock market investments, you can claim them on your tax forms. You will need to sell them, and then you can deduct up to $3,000. The stock you sold cannot be repurchased for 30 days—or purchased less than 30 days before the sale and then claimed. If you do, the IRS will disallow it.You can also apply capital gains losses to cryptocurrency losses. It can be helpful since it has not been doing very well this year.
8. Tax Tips for Your Small Business
Small businesses and self-employed people have the opportunity to get many IRS tax deductions. There are too many to list here, but you need to know what they are. A few of them are deductions you can get for start-up costs, office equipment, marketing, special equipment for the business, supplies, travel, electronics—and much more.A final way to get the tax deductions you need can come from visiting a professional tax person. They know the ins and outs of taxes and will likely enable you to find some you were not aware of previously. They can also give you some tax planning tips for next year to get the maximum tax deductions you want.
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