Worried You’ll Owe the IRS Taxes On Your 2022 Return? Three Moves To Make Now
Most people who file a tax return wind up getting a refund from the IRS.
But you may be in the opposite situation — you’re worried about getting stuck with a huge tax bill when you file your 2022 taxes in 2023.
If your income has gone up a lot this year but you didn’t increase your withholding (the amount of tax taken out of your paychecks) or estimated quarterly tax payments, then you may end up with a huge IRS bill next April.
Even if your income didn’t rise a ton, if you earned a lot of interest income in your savings account or have a lot of capital gains in your brokerage account, you may be looking at a higher tax bill than usual. To be fair, many investors are seeing losses in their brokerage accounts, not gains, due to this year’s stock market performance. But savings account and CD rates are up, so you may have earned more on the money you have in the bank.
The good news, though, is that there are steps you can take to lower your IRS bill for 2022. But you’ll need to make them before the year wraps up.
1. Pump More Money Into Your 401(k) Plan
If you have an IRA, you actually have until next year’s tax-filing deadline to finish making your 2022 contribution. But if you have a 401(k) plan, any money you want counted toward the 2022 tax year will need to be in your account by Dec. 31 of this year.
If you’re worried about owing the IRS a lot this year, ramp up your retirement plan contributions. As long as you’re saving in a traditional retirement plan, not a Roth, the money you put in will exempt more of your earnings from taxes.
2. Donate Goods To Charity
If you itemize on your tax return, you can take a deduction for charitable contributions. And those don’t have to be cash donations. You can claim a deduction for donated goods provided you limit that deduction to their fair market value (what they’d sell for in their current condition) — not their original value.
3. Purchase More Things You Need To Do Your Job
If you own a small business or are self-employed, you’re allowed to deduct items you purchase that make it possible for you to earn money. Say you run a pet care business. You can deduct the cost of things like treats, toys, and other items you need for the animals you look after.
If you commonly spend $500 on supplies every month, instead of doing that, you can spend $1,000 a month on supplies in November and December so you have more to write off for this tax year. You’ll then have fewer supplies to buy in early 2023.
Nobody wants to pay the IRS more money than necessary. If you have reason to believe you’ll end up having to write out a massive check to cover your 2022 tax bill, it pays to do what you can to whittle that sum down.