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2022 Year-End Tax Planning Strategies for Individuals
2022 to 2023 Child Tax Credit (CTC) Qualification and
Income Thresholds With Possible $4,200 Extension
Without further extensions the Child Tax Credit (CTC) will return to normal levels and can only be claimed when filing your tax return, versus advance payments provided during the pandemic years.
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The child tax credit (CTC) will reset to at $2,000 per child in 2022 and 2023. Families must have at least $3,000 in earned income to claim any portion of the credit and can receive a refund worth 15 percent of earnings above $3,000, up to $1,500 per child (Additional CTC). See below for the latest income thresholds for getting the full CTC payment
Don’t let a tax mistake ruin newlywed bliss
When people get married their tax situation often changes. A taxpayer’s marital status as of Dec. 31 determines their tax filing options for the entire year, but that’s not all newlyweds need to know.
Here is a summary of the most impactful tax
planning opportunities to consider
before year-end.
INVESTMENTS
Review investments held outside of tax-deferred vehicles (like an individual retirement account (IRA) or 401(k)) to determine if there are opportunities to minimize taxes. For example, if you have already realized significant capital gains before year-end, consider harvesting losses from investments that have decreased in value. Any realized losses can help offset the capital gains and reduce your tax burden.
RETIREMENT PLAN CONTRIBUTIONS
The contributions and earnings of a traditional employer-sponsored retirement plan are generally not subject to tax until you begin receiving distributions from the retirement plan. The maximum contribution to a 401(k) plan is $20,500 in 2022 (up from $19,500 in 2021). Employees aged 50 or older can make an additional catch-up contribution of up to $6,500 (unchanged from 2021).
NET INVESTMENT INCOME TAX
Individuals whose income is above certain thresholds are subject to an additional 3.8% net investment income tax (NIIT) on their net investment income. Net investment income includes interest, dividends, capital gains, rental income (unless derived from ordinary business activities) and passive activities, less deductions properly allocated to net investment income.
5 Tax Changes You Should Know About for 2023
1. A new set of tax brackets
Wage earners in the U.S. pay taxes on a marginal basis. This means you pay a higher rate of tax on your highest dollars of earnings, and less taxes on your lowest earnings. Your income and filing status dictate what tax bracket you fall into. Here are the new tax brackets taking effect in 2023:
2. Higher 401(k) contribution limits
Saving in an employer-sponsored 401(k) plan is a great way to set yourself up with a nice nest egg for retirement. Plus, the more money you put into a traditional 401(k), the more income you get to shield from the IRS for tax purposes.
3. Higher IRA contribution limits
If you don't have access to an employer-sponsored 401(k) plan (which may be the case if you work for a small business or are self-employed), you can save for retirement in an IRA instead. This year, IRA contribution limits are $6,000 for workers under age 50 and $7,000 for those 50 and over. Next year, these amounts are increasing by $500, so workers under 50 will have a maximum contribution limit of $6,500 and those 50 and over may contribute up to $7,500.
4. Higher HSA contribution limits
If you're enrolled in a high-deductible health insurance plan, your plan may be compatible with a health savings account, or HSA. HSAs let you set aside pre-tax funds for healthcare spending purposes. This year, HSA limits max out at $3,650 if you have self-only coverage and $7,300 for family coverage. There's also a $1,000 catch-up for savers 55 and over.
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Next year, HSA contribution limits will rise to $3,850 for self-only coverage and $7,750 for family coverage. That $1,000 catch-up amount will stay the same.
5. Higher FSA contribution limits
If you're not eligible for a health savings account, it pays to look into a flexible spending account, which will also give you a tax break on the money you set aside for medical costs. The difference between the two is that HSA funds never expire, and FSA funds do. So you'll need to be careful about the money you contribute to your 2023 FSA, to ensure you can spend it all on eligible expenses before the end of the year.
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This year, the maximum FSA contribution is $2,850. Next year, it will rise to $3,050.