With the tax season upon us, The Hechtman Group would like to remind you of some important tax opportunities for 2022 which may impact your return.
There have not been many drastic changes in the past year. As a result, there are many ways to save on your taxes as there have been in past years.
Standard vs. Itemized Deductions
The standard tax deduction is a flat amount that reduces the amount of income that is subject to tax. The amount of the standard deduction varies depending on your filing status, but for the 2022 tax year, the standard deduction is $12,950 for single filers and $25,900 for married couples filing jointly.
Itemized deductions, on the other hand, are specific expenses that you can claim on your tax return to reduce your taxable income. Some common itemized deductions include charitable donations, medical expenses, and state and local taxes.
The decision to claim the standard deduction or itemize your deductions depends on which option will give you the lower tax bill. If the total amount of your itemized deductions is less than the standard deduction, it will be better to claim the standard deduction. However, if your itemized deductions are more than the standard deduction, you will be able to save more on your taxes by itemizing your deductions.
With that in mind, it may be advisable to make additional expenditures before yearend to exceed the standard deduction amount. For instance, “loading up” on your charitable contributions allows you to take higher itemized deductions for that tax year. This is helpful for taxpayers when their itemized deductions are near the standard deduction amounts previously discussed.
Benefits of a Donor Advised Fund (DAF)
A donor advised fund is a type of charitable giving vehicle that offers several potential benefits to donors. Some of these benefits include the ability to make charitable donations in a tax-efficient manner, the flexibility to support multiple charities over time, and the potential to involve family members in the philanthropic decision-making process. While determining which organization(s) will receive your financial contribution, the money in the DAF will continue to grow tax-free. Even further, after depositing cash or any other type of asset into this fund, these contributions are eligible for a tax deduction within the same year the contribution is made.
Giving to loved ones
Gifting to loved ones can have potential tax benefits, depending on the amount of the gift and the relationship between the donor and the recipient. In the United States, the federal gift tax allows individuals to give a certain amount of money or property to other individuals each year without incurring a tax liability. For tax year 2022, the annual gift tax exclusion is $16,000 per recipient. This means that you can give up to $16,000 to any individual without having to pay any gift tax or reporting the gift to the IRS.
The giving of other assets, such as long-term appreciated stock to a family member, can also be beneficial as they are commonly subject to a lower tax rate upon liquidation than you would be.
Harvesting Losses
When you sell an investment at a loss, you can use that loss to offset capital gains you’ve realized in the same tax year. This can help to reduce the overall amount of tax you owe.
In some cases, you may even be able to use the loss to offset ordinary income, up to a certain amount. This is known as a capital loss deduction. It’s important to note that there are limits on how much of a loss you can claim in a given tax year. The IRS allows up to $3,000 in capital losses to be deducted from a taxpayer’s ordinary income if filed jointly, and $1,500 for individuals.
Donations from IRAs
Did you know that you can now donate to organizations using savings directly from your IRA fund? For taxpayers 70 ½ or older, a charitable distribution of up to $100,000 can be taken right out of their IRA and gifted to a charity that is public and approved by the IRS. These contributions are not subject to an income tax and can also be used to satisfy an RMD requirement.
Going green could generate you more green
The Inflation Reduction Act (IRA) of 2022 introduced additional tax credits for energy-efficient home improvements and residential energy-efficient properties that take effect after December 31st, 2022. So before revamping your in-efficient systems, consider holding off until the next year to take advantage of these incentives.
If you are in the market for a new vehicle, the IRA offers tax credits for vehicles they deem “green.” Additionally, as of January 1st, 2022, the government will no longer limit the amount of vehicles produced by manufacturers that are eligible for this credit.
Restrictions are in place to control who can qualify for these credits regarding income levels. Single people earning $150,000, married couples filing jointly making $300,000, and heads of households receiving $225,000 do not meet the requirements for this credit.
Additional limitations do exist on the price of the vehicles that are eligible for this tax credit. If you are in the market for a sedan, it cannot cost more than $55,000. For SUVs and trucks, this threshold is extended to $80,000.
529 Contributions
The guidelines of a 529 plan, also known as a qualified tuition plan, depend on the specific plan and your individual circumstances. For the state of Illinois, contributions to a 529 plan are tax deductible up to $10,000 per year if you are filing individually and $20,000 if you are married and filing jointly. Additionally, earnings generated from a 529 plan are not subject to federal-tax and money withdrawn for the purpose of financing tuition and other college-related expenses cannot be taxed either.
Regardless of if you are simply looking to stay up to date on the tax codes or if you want to get a head start on your tax planning, The Hechtman Group is here to help you meet your tax goals. Contact us today to learn more about our team and how we can serve you during the tax season and throughout 2023.