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No matter what the new year may bring, it's important to take the time to get your documents in order and make strategic decisions for your taxes.
You can start preparing with these tax-planning steps.
Tax Planning Tips
Here are some thoughts on how to start a tax plan:
- If you can control when you receive your income for 2022 and 2023, now is the time to decide if you want more or less income to be reported in the 2022 tax year or the 2023 tax year.
- If you can make contributions to a 401(k), based on your self-employed earnings, be sure to have the necessary documents.
- Will you have enough funds in all Schedule A deductions to get over the limit for the standard deduction amount? For 2022 taxes, the standard deduction is $12,950 for singles ($13,850 for 2023); $19,400 for heads of household ($20,800 for 2023); and $25,900 for married filing jointly taxpayers ($27,700 for 2023).
The standard deductions were almost doubled with changes from the Tax Cuts and Jobs Act for 2018. As a result, through 2025 (when the Tax Cuts and Jobs Act will be in effect) there are several taxpayer groups who may benefit from itemizations during that period of time. That number is likely to drop significantly due to the much bigger standard deduction.
Easily Overlooked Tips
Here are several other issues to consider:
- If you make charitable contributions, decide if you want to contribute this year or next year.
- If you can get a medical expense deduction because your medical expenses exceed 7.5% of your adjusted gross income, try to pile as much medical care as you can into this year. Get an eye exam, glasses, dental work, year-end doctor visits and tests before year-end. Remember, miles that you drive to get medical care and pick up prescriptions count toward the medical expense deduction.
- This might be a good time to do house cleaning and donate things that you don't need. Be sure to make a list, get the values documented and get the items to the charity of your choice. Save that receipt.
Don't Forget Retirement Contributions
Apart from planning your deductions, now is a great time to figure out if you are able to contribute to a Roth individual retirement account (IRA) in addition to the amounts you are contributing to your 401(k) or 403(b) or other tax-deferred program at work.
For most of us, the Roth IRA is a very valuable part of retirement planning. It is easy to set up with a mutual fund company so you can contribute an amount every month so that by the end of 2023, you have it all taken care of.
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.
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