9 Financial Tasks to Complete Before New Years' DaySubmitted by MIRUS Financial Partners on December 13th, 2022
Another year is drawing to a close. That means it's time to revisit your finances to ensure you’ve done everything possible to optimize tax benefits and prepare for the 2022 tax season.
1. Empty HSAs
If you have funds left in an HSA, now's the time to spend them. All qualified contributions added to a health savings account are 100% tax-deductible as long as they’re made by the end of the calendar year. Here are the IRS limits for 2022:
Individuals can contribute up to $3,650.
Families can contribute up to $7,300.
Can’t use it all this year? If you came in significantly under your contribution, consider lowering your contributions next year. You want a zero balance in this account on December 31.
2. Deplete Flexible Spending Account Savings
If your company doesn’t offer a grace period or allow the funds to carry over to 2023, any money left in a flexible spending account will be lost at the end of the year. Generally speaking, you can use FSA dollars on the qualifying medical expenses listed in IRS Publication 502 but double-check your plan to see if there are additional ways to spend your FSA.
Not sure how to use it or lose it before the deadline? Here are some good candidates:
Get an extra pair of eyeglasses, prescription sunglasses, or contact lenses. Or schedule LASIK surgery. If needed, get a hearing aid. Acupuncture, chiropractic care, weight loss programs, stop-smoking programs, dental care, and vasectomies are usually covered. Check your program.
3. Adjust Tax Withholding and Update Beneficiary Designations
If you got married, divorced, or had a child in 2022, you should adjust your W-4 withholdings. Avoid over-contributing (it's like giving the government an interest-free loan).
This is also an excellent time to update beneficiary designations.
4. Max out Your Tax-Deferred Retirement Contributions
For 401(k), TSP, 403(b), or 457 contributions to be tax deductible in the 2022 tax period, they must be made by December 31. Wonder how much you can contribute tax-free?
- Workers under 50 can contribute up to $20,500 in 2022.
- Workers 50-plus can make additional "catch-up contributions" up to $6,500.
At the very least, contribute enough to get any employer match.
5. Consider a Roth Conversion
If you are in an unusually low tax bracket this year, you may want to take advantage of adding income to your return through a Roth IRA conversion.
6. 'Tis the Season to Donate
Contributing to charity is something to consider all year round, but if you're at the bottom of a tax bracket, a charitable donation might lower your income and save on taxes. To be included in 2022 tax returns, charitable contributions are due by December 31. As an alternative to donating cash, consider donating stock or mutual fund shares that have appreciated. By transferring stock or a mutual fund to a charity, you can avoid paying capital gains on the investment and deduct the fair market value from your taxable income if the investment was held for more than one year. Plus, the receiving charity doesn’t have to pay taxes when it sells the stock or mutual fund.
7. Contribute to a 529 Plan
Want to help kids or grandchildren save for college or pay off college debt? Contributions to a 529 plan will grow tax-free and help your child or grandchild pay for qualified education expenses. As a bonus, some states offer additional tax benefits for contributions made in the same calendar year. 529s also have very high contribution limits, usually $350,000 and up, but restrictions vary by state.
8. Take Advantage of the IRS Saver’s Credit
If you contribute to a qualifying retirement account, you may be eligible to claim the Saver’s Credit – a tax credit worth up to 50% of contributions to a retirement plan or IRA. Individuals can receive up to $2,000 in tax credits, while the limit is $4,000 for families.
9. Take Required Minimum Distributions (RMDs)
If you are retired and turned 72 this year, you must take your first RMD from IRAs or retirement accounts such as 401(k)s by April 1, 2023. Your second RMD must be taken by December 31, 2023. Those who wish to avoid having both withdrawals included on their 2023 tax return should make their first withdrawal by December 31 this year. See the IRS table for details or talk with your financial advisor.