Last week we talked about business tax planning for the end of the year. This week, I want to talk about individual tax planning. As we talked about last week, now that the election is over, it looks like we will have divided government in Washington for the next couple years. What this normally means is that there will not be a lot of large tax changes.
Should we start with effects of the stock market going down?
- Sure. This has been a tough year in the stock market, so my guess is that people have unrealized losses on some of their investments. So here is the thought from a tax point of view –
- If you sell any of your stocks at a loss, those losses may be able to offset some of your income for 2022. Two rules to be aware of here –
- First, you can only use capital losses to offset any capital gains plus an additional $3,000. This means that only $3,000 can be used to offset other non-capital gain income.
- Second, if you sell a stock at a loss, you need to satisfy the loss sale rules in order to get the deduction. This rule essentially says that you cannot take the loss if you purchased the stock 30 days before you sell it or if you repurchase the stock within 30 days of selling the stock at a loss.
- The rules here are more complicated than you may think, so you will want to discuss this with your accountant or investment advisor.
Does it still make sense to plan around charitable donations?
- I think it still does, but it is more difficult than it used to be since the standard deduction was increased a number of years ago and will go even higher in 2023 due to inflation.
- The plan here would be to make large contributions in certain years and take the standard deductions in the other years.
- This can be done via large gifts or donations to donor advised funds where you make a large donation in one year that can be used in future years, or even setting up family foundations.
There is additional planning for people over 70, right?
- If you are age 70 ½ or older, you can give a donation to a charity and get a deduction even if you don’t itemize.
- This is called a Qualified Charitable Distribution or QCD. When done correctly, the withdrawal from your IRA will not be taxable and you will not get a itemized deduction for the contribution. So this works really well for those over 70 ½ that are taking the standard deduction.
- Now there are some rules for doing this, so be careful that you follow the rules.
- The donation has to go straight from your IRA to a charity.
- It can only be done after they turn 70 ½, not in the year that they turn 70 ½.
- The maximum deduction is $100,000 per year.
- Contributions from 401k plans and donations to donor advised funds do not qualify.
- Another advantage of this is that the donation to charity also can be counted towards satisfying the required minimum distribution for the year.
We have talked about retirement plans in the past, I am sure this continues to help.
- I know this has been a tough year for a lot of people, but continuing to save for retirement is important.
- If you have not started, this is the time to get going. Start with a small amount and increase each year.
- It is easier to increase it once it is started – even if it is one or two additional percent.
- If you already are funding retirement –remember the limits increase when you get older and can take advantage of the catch-up provisions.
Lastly, what about health savings accounts?
- You know I am a big fan of these accounts since you can contribute money today and get a deduction this year, but you don’t have to spend it before the end of the year.
- For most of us who do not itemize, any medical expenses paid are not tax deductible, but if paid from the health savings account, then they are. It’s like having the government pay for part of your medical costs.
Be sure to talk to one of our professionals if you have any questions regarding individual tax planning for 2022.
As a partner, I have thorough experience providing tax services to individuals, privately held businesses, nonprofit entities and estates and trusts. I also provide compilation and review services.
