Last-minute ways to reduce your taxes for 2022
It's everyone's favorite time of year: tax season! This year individuals have until April 18 to file their 2021 federal income taxes (versus last year's extended deadline of May 17). And while there's really not too much you can do to ease the burden of paying taxes, there are a few final moves you can make to maximize your benefits.
Advice: 3 Tricky Tax Filing Issues -- And How To Handle Them
Tax Day 2022: When Are the First and Last Days To File?
Note that while the regular tax deadline is April 15, since that falls on a Friday this year, the IRS automatically extends it to Monday, April 18.
Check out the ways you can trim down the amount you owe good ol' Uncle Sam.
1. Take a Hard Look at Your 1099s
"Did you take a really hard look at your 1099s this year? Most of us trust that what is printed on that form is 100% accurate and should just be entered as is," said Nicholas Olesen, CFP, CPWA, director of Private Wealth at Kathmere Capital Management. "Well, I have some not so great news for you: it may not be. Especially if you are an executive that receives stock as part of your compensation, like many of our clients."This applies to Restricted Stock Units or Long-Term Incentives the most."Upon vesting you are able to sell those shares or hold onto them to sell at a later date," Olesen said. "However, you are taxed, that year, on receiving those shares as income. So, you have just paid ordinary income tax on it, which is included in your W2. But, what happens when you sell those shares? You will receive a 1099 from the brokerage company that holds them for you (Fidelity, Morgan Stanley, CompuShare...) and they will show your gain or loss, which you will have to pay capital gains on. Here's where the big mistake can happen. I've witnessed many instances over the years where the tax form shows a cost basis of zero and the gain as the total amount you sold. That is not correct. You already paid income tax on it at that time it was granted and therefore your cost basis is the price the stock was given to you multiplied by the shares you were granted."Important: Reasons You Might Not Get a Tax Refund This Year
2. Don't Forget the Special $300 Tax Deduction
"If you use the standard deduction — which over 90% of us do — you can deduct up to $300 in cash donations ... due to the CARES Act," said Betty Wang, CFP. For 2021, if you are married filing jointly, you can take a deduction of up to $600."The IRS defines cash contributions as those made by check, credit card or debit card as well as amounts you incur for unreimbursed out-of-pocket expenses in connection with your volunteer service to qualifying charitable organizations. Cash contributions do not include the value of your volunteer services or donations of securities.Related: 7 Ways You're Accidentally Committing Tax Fraud
3. Contribute To an IRA
"Depending on your income level and access to retirement plans your contribution may be tax-deductible or in the case of a Roth IRA, be tax-free in retirement if you follow the rules," said Patricia Stallworth, CFP, CEO PS Worth and the author of the upcoming book, "Women v. Money: How to Take Charge and Win." "In either case, you win because it increases your retirement nest egg."You have until April 15 to make contributions to your IRA. You can contribute up to $6,000 for tax year 2021 — $7,000 if you're age 50 or older.See: These Are the Receipts To Keep for Doing Your Taxes
4. Get a Head Start on Your Kid's College Fund
You may be done with college — but what about your kids? A great way to get a head start on their future educational costs and to possibly save on your 2021 income taxes is to dump some cash into your child's 529 college savings plan. Depending on your state, this might get you a state tax deduction.The contribution doesn't have to be for your own child to earn you a deduction. In Virginia, for example, Virginia529 account owners who are also Virginia taxpayers can deduct up to $4,000 per account per year, regardless of who the beneficiary is.Learn more about 529 plans at the IRS' site here.Read More: Most Popular Things To Do With Your Tax Refund -- and How To Do It Smarter
5. Consult Your HR Department
"Call your Human Resources Department," said Howard Dvorkin, CPA and chairman of Debt.com. "You might have work benefits that offer tax breaks. These are pretty specific. For example, did you have an HSA-eligible health insurance policy? ... You can make extra contributions right now that will come off your taxes." For tax year 2021, the annual limit on HSA contributions is $3,600 for a self-only insurance plan and $7,200 for a family plan. You can make an additional, $1,000 catch-up contribution if you're age 55 or older. To be eligible, the insurance plan must be a high-deductible health plan with a minimum deductible of $1,400 for self-only coverage or $2,800 for family coverage. The maximum out-of-pocket expenses mustn't exceed $7,000 for a self-only plan or $14,000 for a family plan.The deadline for making a 2021 contribution to your HSA is April 15, 2022.Did You Know: Here's the Average IRS Tax Refund Amount
6. Make Sure Your Return Is Done Correctly
"Rushing your filing or failing to ask questions can result in an incorrect tax return," said CFP Lauren Anastasio, formerly of SoFi. "When this happens it's very possible you will need to file an amended return, which is both costly and time-consuming. It may be worth hiring professional help to file your return even if you're used to doing it yourself — it will be cheaper to pay someone to help you do it correctly the first time then file an incomplete or incorrect return and go through the process of amending it."Read More: This Is Where Your Tax Dollars Actually Go
7. Get Expert Tax Help for Free (If Eligible)
Some taxpayers are eligible for free assistance preparing their tax returns. "The IRS has two programs, called Volunteer Income Tax Assistance (VITA) and the Tax Counseling for the Elderly (TCE)," Dvorkin explained. VITA offers free basic return preparation to those who earn under $58,000 or are disabled or have limited ability to speak English.TCE helps individuals age 60 or older during the normal filing period, which is Jan. 1 to April 15.The programs might have limited capacity due to the pandemic, but "if you move fast, you might be able to get free help by the deadline," Dvorkin said. The IRS has an online search function so you can find a place within a few miles of you, [as does] AARP.Free tax help can't hurt — and it just might help you cut corners on your tax bill, too.More From GOBankingRatesHow Much You Should Have in Your Savings Account at Every Stage of Life
Find Out Which Banks Are the Top 100 Banks Leading the US in 2022
How Has COVID-19 Impacted the 2022 Tax Season?
35 Useless Expenses You Need To Slash From Your Budget Now
Daria Uhlig contributed to the reporting for this article.
This article originally appeared on GOBankingRates.com: Last-Minute Ways To Reduce Your Taxes for 2022
