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Here‘s our annual list of money moves and tax items to consider at year end!
Final Account Contributions
Assuming you have surplus funds after paying off debt and building reserves, consider topping off those retirement and flex accounts.
Click here to access our Tax & Financial Data form, which will give you account limits on page two for things like 401k’s, IRA’s, Health Savings Accounts, etc.
Required Minimum Distributions (RMD’s)
Those older than 72 should ensure they’ve taken proper withdrawals from applicable requirement plans to ensure no penalties are levied. If you were born in 1950 or earlier, you must take requirement minimum distributions from certain accounts like IRA’s and 401k’s. Contact your financial advisor or account administrator to ensure you’re in compliance.
The 2022 annual gift exclusion is $16,000…meaning any individual can give another individual up to $16,000 without any tax reporting requirements. This annual limit will be increasing to $17,000 for 2023. So an individual could give another individual $33,000 over a 2-day period ($16k on 12/31/22 and another $17k on 1/1/23). Married couples can double this amount since the annual limits apply to each giving spouse.
Roth IRA Conversions
Down markets and down income years can still present opportunities, specifically with conversions to Roth IRA’s. Consider this before year-end if taking advantage of this strategy makes sense for you. Click here for a recent article we wrote on this strategy.
Prepare for 1099’s
This may be a first for many folks. Those who received third party payments exceeding $600 in 2022 for goods and services may receive a Form 1099-K. It pays to understand these forms so you don’t pay unnecessary taxes. The law states all income, including side work and the sale of goods, is taxable. However, many folks use Venmo and other apps to exchange funds for personal gifts or reimbursements for personal expenses. These items are NOT taxable. Therefore, it’s important to record 1099-K figures correctly on tax returns to reflect accurate reporting.
Beware Reduced Tax Refunds…Save Accordingly
The IRS is expecting many taxpayers to receive smaller refunds for 2022 tax year returns as compared to previous years. That’s due to several differences from 2021 to 2022, as follows:
If any of the above apply to you, it’s important to understand you may have much different figures in 2022 due to these legislative changes. It may be wise to keep some money in savings/reserves to counter this possible “surprise”.