- December 20, 2022
- Posted by General Electric Credit Union
- 6 read
7 End-of-Year Tips in Preparation for Tax Season 2023
Updated 2.2.2023: In 2023, the required minimum distribution (RMD) age raised to 73.
For the past few years, the IRS has pushed back tax filing deadlines due to the pandemic and other factors. As of now, they are not expected to follow suit this year and have already announced April 18th as the deadline for tax season 2023. While you have until then to submit, there are steps you can take between now and the end of the year that may be to your benefit.
2022 year-end tax taps
1. Defer income to next year
Consider opportunities to defer income to 2023, particularly if you think you may be in a lower tax bracket then. For example, you may be able to defer a year-end bonus or delay the collection of business debts, rents, and payments for services. Doing so may enable you to postpone payment of tax on the income until next year.
2. Accelerate deductions
You might also look for opportunities to accelerate deductions into the current tax year. If you itemize deductions, making payments for deductible expenses such as medical expenses, qualifying interest, and state taxes before the end of the year (instead of paying them in early 2023) could make a difference on your 2022 return.
3. Make deductible charitable contributions
If you itemize deductions on your federal income tax return, you can generally deduct charitable contributions, but the deduction is limited to 50% (currently increased to 60% for cash contributions to public charities), 30%, or 20% of your adjusted gross income (AGI), depending on the type of property you give and the type of organization to which you contribute. Excess amounts can be carried over for up to five years.
4. Bump up withholding to cover a tax shortfall
If it looks as though you will owe federal income tax for the year, consider increasing your withholding on Form W-4 for the remainder of the year to cover the shortfall. Time may be limited for employees to request a Form W-4 change and for their employers to implement it in time for 2022.
The biggest advantage in doing so is that withholding is considered as having been paid evenly throughout the year instead of when the dollars are actually taken from your paycheck. This strategy can be used to make up for low or missing quarterly estimated tax payments.
5. Save more for retirement
Deductible contributions to a traditional IRA and pre-tax contributions to an employer-sponsored retirement plan such as a 401(k) can reduce your 2022 taxable income. If you haven't already contributed up to the maximum amount allowed, consider doing so.
For 2022, you can contribute up to $20,500 to a 401(k) plan ($27,000 if you're age 50 or older) and up to $6,000 to traditional and Roth IRAs combined ($7,000 if you're age 50 or older). The window to make 2022 contributions to an employer plan generally closes at the end of the year, while you have until April 18, 2023, to make 2022 IRA contributions. Roth contributions are not deductible, but Roth qualified distributions are not taxable.
6. Take required minimum distributions
If you are age 72 or older, you generally must take required minimum distributions (RMDs) from traditional IRAs and employer-sponsored retirement plans (special rules apply if you're still working and participating in your employer's retirement plan). You have to make the withdrawals by the date required—the end of the year for most individuals. The penalty for failing to do so is substantial: 50% of the amount that wasn't distributed on time.
7. Weigh year-end investment moves
You shouldn't let tax considerations drive your investment decisions. However, it's worth considering the tax implications of any year-end investment moves that you make. For example, if you have realized net capital gains from selling securities at a profit, you might avoid being taxed on some or all of those gains by selling losing positions. Any losses over and above the amount of your gains can be used to offset up to $3,000 of ordinary income ($1,500 if your filing status is married filing separately) or carried forward to reduce your taxes in future years.
Tax season 2023 will be here before you know it. General Electric Credit Union members have access to discounted pricing when filing through TurboTax® Online™. Save up to $15 on the #1 best-selling tax software and get your taxes done right. In addition to a tax professional, a financial advisor, available through CUSO Financial Services, L.P. (CFS),1 can help you plan your retirement based on your goals and dreams. Connect with your CFS* advisor today and schedule a no-cost consultation.