Tax Planning Retirement Planning CI Brightworth Private Wealth

10 Money moves before Dec. 31

Tick, tick, tick. Time is running out to take care of some financial housekeeping items that could save you money and do others some good.

The end of 2022 is in sight, but there is still plenty of time left to make several financial moves that will help improve your retirement savings, reduce your tax bill and benefit your community.

Here are 10 ways that you can use to try and improve your financial condition between now and December 31. Some of these ideas involve transactions with third parties, so it's best to move ahead as quickly as you can to reap the most benefits.

Contribute the Maximum Amount into a 401(k) Retirement Plan

It might  be the easiest and smartest way to save for retirement. Federal law currently allows workers under 50 years old to contribute $20,500 to their company plan. If you are 50 and older, you can contribute $27,000.

If you are not on track to contribute the maximum amount, you still should have some pay periods left before the end of the year, so make the most of them. And remember, if you elect your contribution to go into the before-tax 401(k), those funds will not be taxable as part of your 2022 federal tax return. The more you put in, the of your income will be taxable this year.

Make the Most of Your Health Savings Account

For those with a high-deductible health insurance plan, try to contribute the maximum amount. Individuals can contribute $3,650 for 2022, and those with family plans can contribute up to $7,300. People 55 and older can contribute an extra $1,000. The maximum amount you can put in includes any employer contributions, so be sure to understand whether your company is making deposits on your behalf.

Be aware that once you reach age 65 and are eligible for Medicare, most people can no longer contribute to a health savings account, so there is a limited window to take advantage of this incredible savings plan. Many experts refer to the tax benefits as the "triple tax play" — save taxes on the money going in, no taxes on the interest earned inside the account, and withdrawals are tax-free when used for qualified medical expenses.

The good news here is that you have until April 15, 2023, to contribute money into the HSA for 2022. However, it's best to make those contributions by December 31. This will give the person preparing your tax return all the information and forms they need to document your contribution. And you won't have to remember to take care of this task after the new year.

Fund an Individual Retirement Account or Roth IRA

While you may not get a tax deduction for this, it's good discipline for anyone who is working to fund their IRA or Roth IRA. People under age 50 can contribute up to $6,000 and those 50 and older can contribute $7,000, assuming they made at least this amount in wages. While you do have until April 15 2023 to fund your IRA or Roth IRA, it’s a good discipline to save this money by year-end so you don’t forget.

Empty Out Your Flexible Spending Account

Many people have a Flexible Spending Account (FSA) at work to cover certain out-of-pocket medical, dental and vision expenses. While contributions to these special accounts provide a tax deduction, there is a catch: These funds are subject to the “use-it-or-lose-it” rule. So, it’s important to spend any remaining money in this account before you lose it, typically by December 31.

Make sure to find out whether your company offers a grace period into 2023 to spend FSA funds. Some companies will allow employees to spend money in their 2022 account through March 15, 2023. If not, make sure you find the time for a last-minute run to the pharmacy, dentist or optometrist. 

Speak with Your Tax Adviser

If you earned more money in 2022 than in previous years, ask your tax adviser to project the amount of taxes due in the fourth quarter. This will enable you to determine if you need to make an estimated tax payment before January 15 to avoid penalties. Even if you don't believe you will have a large tax bill, it’s wise to have this conversation. There's no need for an unpleasant surprise when your 2022 tax return is finished and you end up with a larger-than-expected tax bill this spring.

Find Out If You Qualify for Tax Credits

Some states allow individuals to buy tax credits that support feature film production, low-income housing, energy, and other initiatives. In Georgia, a television or movie production company may receive a tax credit for its expenses incurred there. If they can't use all their credits, they are allowed to sell their unused credits to Georgia taxpayers.

Business owners, professionals and others with large tax bills can go to the market and buy these credits to reduce the amount of state income taxes they pay. It's also another reason to find out the amount you may owe in 2022 state income taxes and make sure you have enough cash available over the next few months to buy those credits.

Contribute to Your Children's or Grandchildren's 529 College Savings Plan

It takes time to save for a college education and contributing to a college savings account each year can be a great way to make a dent in this big future expense. Over 30 states and the District of Columbia currently offer a state income tax credit or deduction up to a certain amount. For example, contributions to a Georgia 529 plan of up to $4,000 per year by an individual or $8,000 per year by a married couple filing jointly are deductible in computing state income tax.

Also, if you have been contributing to a plan for several years, review the asset allocation of the 529 plan and make sure it's not too aggressively invested, especially if your child is going off to college in the next few years.

Evaluate Capital Gain and Losses – It was a Wild Year!

The Standard & Poor's 500 index was down significantly in 2022, and many investors have losses in their portfolios. If you have sold any investments at a loss this year, you may have lower capital gains tax this year than last year. 

When you sell investments that have gone down in value, you can report the tax loss on your tax return to offset other capital gains. If your losses are large, you can use up to $3,000 annually to offset other types of income.

Reduce Taxes by Donating Stocks or other Appreciated Assets to Charity

Even with this year’s market volatility, many investors who have participated in the stock market over the past decade have gains in their portfolios. It may still be a good time to donate some of these stocks to your favorite charity, especially if you are looking for some extra deductions to offset higher income or capital gains this year.

A financial tool that can help accomplish your charitable giving goals while also reducing taxes is a Donor Advised Fund. The fund allows you to donate several years of charitable contributions up front, liquidate stock inside the account that has appreciated and pay no capital gains tax, then disperse those contributions to charities over multiple years.1

Because nonprofit organizations and custodians of donor-advised fund might be busy with these requests at year's end, you might want to transfer any stocks to charity or a donor advised fund now. This could help ensure your contribution is recorded in order to get a deduction on your 2022 taxes. If you are donating real estate, business interests or other sophisticated assets, jump on this today too.

Use the Gift Tax Exclusion to Spread the Wealth Among Family

You can give $16,000 annually by December 31 to an unlimited number of people without having to report this on a gift tax return. And the beneficiary of the gift does not report it as income either. Married couples can gift $32,000 to an unlimited number of people each year, which can be $16,000 from each spouse to the same person.

 

1 https://www.irs.gov/charities-non-profits/charitable-organizations/donor-advised-funds


ABOUT THE AUTHOR

Lisa Brown

Lisa Brown

Partner

Lisa is the Practice Area Leader for Corporate Executives at CI Brightworth and is the current chairwoman of CIPW’s Business Development Committee. In addition to serving clients, Lisa has published three books, Girl Talk, Money Talk. The Smart Girl’s Guide to Money After College; Girl Talk, Money Talk II. Financially Fit and Fabulous in Your 40s and 50s; and CI Brightworth’s first book, Building Your Wealth Inside Corporate America. Lisa has been featured in The New York Times, The Wall Street Journal, YahooFinance, CNBC.com, and many more. A frequent speaker at seminars across the country, she also produces a podcast series, Taking Stock with Lisa Brown, with regular financial content for busy professionals, in under 30 minutes.



Wesley Wood, CFP, CIMA

Wesley Wood, CFP, CIMA

Wealth Advisor

Wesley Wood is a Wealth Advisor at CI Brightworth Private Wealth, where he works with executives as they navigate complex compensation structures. Wesley joined CI Brightworth in 2017, and previously worked in Silicon Valley with tech executives and startup founders. Wesley is a CERTIFIED FINANCIAL PLANNER practitioner and holds the Certified Investment Management Analyst certification, administered by Investments Wealth Institute and taught in conjunction with the Yale School of Management.




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