3 Things I'm Doing in January to Keep My 2022 Tax Bill Low

3 Things I’m Doing in January to Keep My 2022 Tax Bill Low

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  • You have till the tax submitting deadline to contribute to retirement accounts like a Roth IRA.
  • If you are self-employed, double test that you just’re getting essentially the most out of your deductions.
  • If you might have non-W-2 revenue, the IRS expects you to pay your tax legal responsibility by the tip of January.

At the very prime of my to-do checklist for the beginning of 2023, I made a observe reminding me to name my accountant. Even although I’ve a couple of extra months earlier than I’ve to take into consideration taxes, I wished to see if there was something I may do now to assist scale back my 2022 tax bill.

As a solopreneur, whose revenue varies drastically each single month, I’ve turn into strategic about making an attempt to lower your expenses all year long in order that I pays my tax invoice , with out having to negotiate a cost plan with the IRS and get hit with curiosity. However, I hope to find a way to use among the money I saved up in 2022 to pay this expense for different issues, like investing in my enterprise or in actual property.

That’s why I reached out to my accountant, Katie Gallo, and requested if there’s something I can do now to assist scale back my 2022 tax invoice. Here are the three suggestions she gave me and the way I plan to handle them earlier than the tip of January.

1. Contribute to retirement accounts

It wasn’t till 4 years in the past, once I turned 30, that I made a decision to get severe about saving for retirement. I opened a SEP IRA account and tried to make month-to-month contributions, although some months I forgot or did not have the money to contribute. When I shared with my accountant that I missed some contributions, she jogged my memory that it isn’t too late to put cash into my SEP IRA and rely these funds as a 2022 deduction.

“Most folks don’t understand they’ve till the tax submitting deadline to contribute to each conventional and Roth IRAs, in addition to SEP IRAs and Keogh accounts for enterprise homeowners,” stated Gallo. “To qualify, the taxpayer should not be eligible to take part in a company-sponsored plan and meet sure adjusted revenue necessities.”

My SEP IRA contributions are tax deductible. However, Gallo gave me an necessary reminder about Roth IRA contributions. While these contributions won’t decrease your tax invoice immediately, the withdrawals are tax-free in retirement.

Wealthfront Wealthfront IRA


Fees

0.25%; 0.06 – 0.13% for low-cost funding funds


Account Types

Traditional IRAs, Roth IRAs, and SEP IRAs


Investment Types

ETFs, index funds, and crypto trusts

Wealthfront Wealthfront IRA


Fees

0.25%; 0.06 – 0.13% for low-cost funding funds


Account Types

Traditional IRAs, Roth IRAs, and SEP IRAs


Investment Types

ETFs, index funds, and crypto trusts

2. Max out all attainable deductions

I’m in the method of gathering my enterprise bills to share with my accountant earlier than tax season begins. With that in thoughts, she shared one other manner I can decrease my tax invoice: Make certain that I’m maxing out all attainable deductions.

Gallo stated that whereas most self-employed people and enterprise homeowners are conversant in the idea of deducting business related expenses, they generally go away cash on the desk by not contemplating different areas of their lives they could find a way to deduct from their revenue.

Some of these examples embrace residence workplace or mileage deductions, and any depreciation on private property getting used for enterprise functions.

“Though people who aren’t self-employed are ineligible for the deductions talked about above, there nonetheless will be alternatives to itemize bills for deduction similar to medical bills, medical health insurance prices, mortgage curiosity, property taxes, charitable donations, and extra,” stated Gallo.

However, one factor to observe is that these bills have to be greater than the filer’s commonplace deduction to qualify.

3. Avoid further charges

One factor I did not understand as a taxpayer was how necessary it’s to ensure you meet your deposit requirement for the yr. Gallo identified that the IRS expects you to pay your tax legal responsibility for the earlier yr by the tip of January, which could not be widespread information. However, if you’re somebody who receives your whole revenue on a W-2 and withholds correctly, you’re lined.

However, should you obtain any extra non-taxed revenue, which occurs loads in my position as a solopreneur, it is necessary that you just make an estimated tax cost to cowl earned revenue. If not, you can obtain a penalty.

“Generally, most taxpayers will keep away from this penalty in the event that they both owe lower than $1,000 in tax after subtracting their withholding and refundable credit, or in the event that they paid withholding and estimated tax of at the least 90% of the tax for the present yr or 100% of the tax proven on the return for the prior yr, whichever is smaller,” stated Gallo.

She added that should you do not meet these thresholds, the IRS can hit you with a 0.5% late-payment penalty for every month the cost is delinquent, which is one thing I completely need to keep away from.