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End of the Year Tax Tips

‘Tis the season to not only spend time with loved ones and exchange gifts. It is also the season to get your tax situation in order in preparation for our personal favorite season – Tax season! We decided to write a few money-saving end of the year tax tips so that you can buy even more presents and, perhaps, put a bit more into your retirement savings account.
First of all, we should go over the kinds of Medicare available. There are four parts: A, B, C, and D.

Tax Deductions

Like a wrestler or boxer trying to make weight by shedding a pound or two, a diligent taxpayer should pare down on taxable income to get into a lower tax bracket and keep more money in their wallet. So, what are some ways to reduce YOUR taxable income?

Tax Tip #1: Max-out Tax-deferred Retirement Accounts

You should max out pre-tax contributions to your company 401(K) and personal IRA. Your employer should automatically deduct any contributions you put into your 401(K), but you may want to bump up your contributions if you aren’t maxing it out. As for your IRA, you can contribute $6,500 a year, and if you’re over 50, you can contribute an additional thousand dollars as a “catch-up” contribution.
Carefully go back through your paystubs and look through your contributions to see if there’s any room left.

Tax Tip #2: Deduct Education Expenses

Another way to obtain a tax deduction is to contribute to a 529 account, a specific investment account designed to pay for college tuition and other qualifying expenses. You can put $16,000 a year into it. But, if you’d like to superfund the 529, you can put up to $80,000 in 2022. That $80,000 lump sum is known as a ‘front-load’ and covers the next five year’s worth of contributions. Basically, you won’t be able to deduct any contributions in 2023 if you superfund it in 2022.

Tax Tip #3: Tax-Loss Harvesting

You can deduct up to $3,000 of those losses from your taxable income by selling an underperforming asset at a loss. The assets simply can’t originate from a tax-advantaged retirement account such as a 401(K) or IRA. Tax-loss harvesting is beneficial during end-of-the-year portfolio rebalancing.
Let’s say you have a stated asset allocation goal of 60% ETFs/mutual funds and 40 percent bonds. But bonds start sinking in price while stock prices go up, resulting in a 70/30 allocation.
Overall, your ETFs and mutual funds are doing great, but you notice one is underperforming. You can sell that ETF as a loss, deduct it from your taxable income, and then purchase bonds with your tax savings to even out your portfolio.

Tax Tip #4: Donate to Charity

In line with the holiday spirit of giving, you may consider donating to a charity of your choice. In 2022, you can donate a cash amount of up to 60% of your Adjusted Gross Income (AGI) or 30% in non-cash assets if held for more than one year.
You have a couple of options when it comes to deducting charitable donations.
One opportunity is to donate appreciated non-cash assets by opening a Donor-Advised Fund. By doing so, you may avoid paying capital gains taxes. For example, let’s say you have stocks that have gone from $100 to $150 in value and have held them for two years. You can sell those shares, realize a $50 per share profit, and then donate the post-tax proceeds to charity.
A more efficient tax strategy would involve simply donating the shares and deducting the Fair Market Value rather than the post-tax value from your taxable income. You’ll end up with a more significant deduction using this method.

Additional Tax Tips

We’ve covered the significant deductions you can make, but there are other ways to optimize your tax situation.

Additional Tax Tip #1: Spend Your Leftover FSA funds

If your work offers you a Flexible Savings Account (FSA) that you have contributed to, make sure you spend everything in the account. If you don’t use it, you lose it! Your company may offer a grace period into 2023, so if you don’t have any pressing medical needs, you can look into holding off until January.
If you’re unaware of an FSA, it is an employer-sponsored medical expense account that lets you pay for qualifying medical expenses with pre-tax dollars. They may cover expenses such as co-pays, deductibles, insulin, and specific medical devices.

Additional Tax Tip #2: Look Into a Roth Conversion

After saving so much in taxes and bringing yourself down a tax bracket, you should consider a Roth conversion while having lower taxes. Beware, though, a conversion may not make sense if it pushes you back up a tax bracket. In any case, a financial advisor will be able to make the determination.
Read more about Roth Conversion! –> To Convert or Not To Convert In a Market Downturn

In Conclusion

You can utilize any one of these strategies alone or in combination to reduce your overall tax burden and, with those savings, reinvest into your retirement or investment accounts. A smart tax policy will improve your overall financial fitness, and if you choose to reinvest, strengthen your portfolio. Considering that inflation is high and taxes are set to go up in 2025, you should save and invest every dollar possible!
Fortunately, as both CPAs and investment advisors, we can help you on both sides of the tax and investment coin. Just reach out to us by clicking the button below!

About the Authors

  • Douglas Walters

    Doug is the Managing Partner of Walters Strategic Partners, LLC, a licensed Registered Investment Advisory firm. Doug is a licensed Certified Public Accountant (CPA) in the state of Florida and holds a Series 65 Investment Advisor Representative securities license. He is also a member of the AICPA. With over 28 years of experience as a CPA, he believes investment decisions should be based on decades of peer-reviewed research rather than relying on the latest “hot tip” from media outlets. This empirical evidence puts the science of investing to work for his clients.

  • Jose Joia

    Jose M. Joia is a Wealth Advisor at Walters Strategic Advisors, LLC. As a member of the team, Jose’s responsibilities involve comprehensive wealth management, planning and customer service. He has over 6 years of industry experience specializing in planning and solving unique issues his clients encounter. Jose has experience serving individual clients, business owners and non-profit organizations.

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