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5 Year-End Tax Questions for Your Financial Advisor

BECU Investment Services

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The average U.S. income tax rate stands at just over 13% — and if you're like many taxpayers, you're always looking for new tips and tricks to help reduce this percentage.1

There are several different tax planning moves you can make to reduce your owed taxes. But how can you know which strategies are available to you? Here are five year-end tax planning questions you may want to ask your financial advisor.

#1: Is There Room Left in My Retirement Accounts?

For the 2022 tax year, most taxpayers who have earned income can contribute up to $20,500 to a 401(k) and $6,000 to a traditional or Roth IRA.2 Depending on your tax bracket and taxable income, contributing money to a pre-tax account like a 401(k) or traditional IRA could save you a significant amount in taxes. If you haven't already maxed out your contributions to one or both of these accounts, doing so could pay off at tax time.

For example, if you're in the 22% bracket, contributing an extra $3,000 to your IRA could reduce your federal income taxes by $660. And if you live in a state that taxes income, this IRA contribution can save you even more in state taxes.

#2: Should I Sell Investments?

If you have some stagnant investments, you may be able to sell them at a loss to offset investment gains. This strategy, known as tax loss harvesting, can allow you to free up funds for more lucrative investments while minimizing your capital gains taxes.

But because the rules around buying and selling taxable securities can be complicated, this is a strategy you'll want to discuss with your financial advisor before finalizing any transactions.

#3: Are Any Other Tax Deductions Available?

Some last-minute tax deductions may work to lower your bill. Talk to your tax professional about whether these deductions may be available or right for your financial situation:

  • Charitable contributions.
  • Medical expenses.
  • Student loan interest.
  • Gambling losses.
  • Home office expenses.

#4: Can I Defer Any Income?

Another way to reduce your taxes is to defer some income into 2023. Though you may not be able to do this with a traditional W-2 paycheck, deferring contract or freelance income, a bonus, or capital gains into next January instead of December will mean that this income is taxed in 2023, not 2022.

However, deferring income may only make sense if you expect yourself to be in the same tax bracket (or a lower one) next year. You don't want to defer income that will launch you into a higher bracket. Talk to your financial advisor to see whether it makes sense to defer any income and, if so, how to make it happen.

#5: Do I Need To Spend FSA Funds?

Unlike a health savings account (HSA), which allows you to carry over funds from year to year, a flexible spending account (FSA) is generally "use it or lose it." Be on the lookout for any grace periods — you might find that you have until March 2023 to spend certain FSA funds.

Talk to a Financial Advisor

Financial advisors with BECU Investment Services are here to help. Our team will take the time to get to know you, understand your goals and plan and implement a financial strategy that's appropriate for you. Set up a complimentary consultation or call 206-439-5720.

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.

The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

This material was prepared for BECU Investment Services use.

LPL Tracking # 1-05342071

1Average tax rate in the United States in 2019, by income percentile, Statista,

2401(k) vs. IRA Contribution Limits for 2022, Experian,

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