As the end of the year approaches, it’s important to start thinking about your tax strategy for the coming year. There have been a number of changes to the tax law in recent years, so it’s important to be aware of how these changes will affect you and your business.
With careful planning, you can minimize your taxes and maximize your deductions. Here are a few things to keep in mind as you start planning for your 2022 taxes:
By following these tips, you can ensure that you are in the best possible position come tax time.
1. Know the changes to the tax law
The Tax Cuts and Jobs Act (TCJA) made a number of changes to the tax code that went into effect in 2018. While many of these changes are set to expire in 2025, there are a few that will affect taxpayers in 2022. The biggest change for 2022 is the return of the personal exemption. The personal exemption allows taxpayers to deduct a certain amount from their taxable income for each person in their household. The personal exemption was phased out under the TCJA, but it will return in 2022 with a few changes. The personal exemption will now be capped at $4,000 and will phase out for higher-income taxpayers. Another change that will affect taxpayers in 2022 is the return of the itemized deduction for state and local taxes. The TCJA capped the deduction for state and local taxes at $10,000, but it will return to its pre-TCJA level in 2022. This deduction is especially important for taxpayers in high-tax states like New York and California.
2. Maximize your deductions
There are a number of deductions and credits available to taxpayers, and it’s important to take advantage of them whenever possible. Some of the most popular deductions include the mortgage interest deduction, the charitable giving deduction, and the home office deduction. The mortgage interest deduction allows taxpayers to deduct the interest paid on their mortgage from their taxable income. This deduction is capped at $1 million, but it can save taxpayers thousands of dollars each year. The charitable giving deduction allows taxpayers to deduct the money they donate to charity from their taxable income. This deduction is capped at 50% of your adjusted gross income, but it can still save you a significant amount of money if you donate regularly to charity. The home office deduction allows taxpayers to deduct the expenses associated with their home office from their taxable income. This deduction is available to taxpayers who use a portion of their home exclusively for business purposes. The deduction is capped at $1,500, but it can save you a significant amount of money if you have a home office.
3. Plan for business expenses
If you’re self-employed or have a small business, it’s important to plan for your business expenses. This includes things like office supplies, travel expenses, and marketing costs. Self-employed taxpayers can deduct their business expenses from their taxable income. This deduction is capped at $5,000, but it can save you a significant amount of money if you have a lot of business expenses.
4. Prepare for success in 2023
The changes to the tax code that were made in 2018 are set to expire in 2025. This means that taxes will go up in 2026 unless Congress takes action to extend the changes. Now is the time to start planning for the future and preparing for the possibility of higher taxes. There are a number of ways to do this, but one of the most important is to max out your retirement accounts. 401(k)s and IRAs are a great way to save for retirement and minimize your taxes. These accounts allow you to contribute pre-tax dollars, which can save you a significant amount of money on your taxes. You should also consider saving money in a taxable account. This account won’t offer the same tax benefits as a retirement account, but it will give you access to your money without penalty.
The end of the year is a great time to start planning for your taxes. By taking the time to understand the changes to the tax code and maximize your deductions, you can save yourself a lot of money come tax time. If you have more questions or want to connect with us, visit our contact page.