In less than two months, we’ll ring in 2023. So now is the time to assess your tax situation. Below are five ways to lessen the amount you pay to the IRS next April.
1. Review your paycheck tax withholding.
This step is especially critical if you experienced a big life change in 2022 – got married or divorced, had a baby, received a pay raise, bought a large purchase like a house, spouse got a job, adult child moved out, etc. You may find this tax withholding estimator tool helpful as a start.
Of course, we suggest speaking with a tax or accounting professional too. Figuring the correct withholding for your paycheck keeps you from owing a large, unexpected amount when you file AND keeps more money in your pocket each month.
2. Use your online IRS account to your
Part of what scares people about taxes is the fear of the unknown. We suggest removing that fear. (Knowledge is power!) If you haven’t created an online IRS account, consider doing so. Find the link to start here.
By creating this account, you can review previous tax returns, plus see the amount you’ve already paid in taxes this year. Because W2s and 1099s aren’t issued until January for the year prior, those forms for 2022 won’t be in your account currently.
However, your IRS online account will be helpful for years to come.
3. Give to your favorite charity (or charities).
You’ve probably heard that charitable giving can help you on your taxes. And that is a true statement. But there are two caveats.
First, in order to deduct charitable giving, your itemized deductions must be greater than the standard deduction. (Find 2022 standard deductions here.) This means you must choose to itemize rather than take the standard deduction when preparing your taxes. We encourage you to seek professional advice if you’re debating between itemizing or not.
Second, your charity of choice must be a nonprofit with tax-exempt status. Be sure to ask or check on their website before donating a large sum of money.
4. Contribute the maximum amount to your 401(K) retirement fund.
Start this step by speaking with someone in your human resources (HR) department or a tax professional. And do so soon because you must adjust 401(K) contributions before December 31st or your last paycheck.
You may not exceed the contribution limits per year. Your HR department or your accountant can help you determine how much you’ve already contributed up to this point in 2022.
5. If you have a flex spending account (FSA), use your remaining balance.
If you have a FSA, you need to spend the remaining balance by the end of the year or risk losing your money. There are some instances when you have extended time to zero out your account, but you need to know your employer’s policy before assuming this to be true.
Morgan & Associates Know Taxes
The time to prepare for taxes is now. Each suggestion above can help you keep more of your money. But, they are time sensitive, and especially if you have questions or need professional advice.