Get Big Tax Breaks for 2022 by Acting Now

By Laura Saunders

It’s time to make year-end tax moves. With inflation way up and markets way down for 2022, there’s plenty to track. As in the past, most actions for tax-year 2022 must be made before Jan. 1, 2023. The main exceptions: Contributions to traditional IRAs, Roth IRAs and Health Savings Accounts for 2022 can often be made until April 18, 2023, next year’s tax deadline. Some self-employed taxpayers can make 2022 contributions to Solo 401(k)s until Oct. 16, 2023.

Here are areas to focus on now.

Check withholding and estimated taxes
Inflation has pushed the penalty on tax underpayments to 6%. On Jan. 1, it will likely rise to 7%, far above the 4% rate earlier this year. So check withholding or quarterly estimated taxes, especially if your income has been uneven or included a windfall.

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Employees who raise their paycheck withholding late in the year often escape underpayment penalties for the entire year, and the IRS has posted a calculator to help figure withholding. Retirees and self-employed taxpayers must do their own assessments. What if you’re headed for a big 2022 refund? Given IRS backlogs and snafus, consider lowering withholding or estimated tax payments to minimize headaches if the refund is delayed.


Standard deduction or itemized?
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For 2022, the standard deduction is $25,900 for married joint filers and $12,950 for single filers. Inflation has lifted the amount for 2023—to $27,700 for married joint filers and $13,850 for single filers—something to keep in mind for planning purposes. (Filers age 65 or older get at least $1,400 more each for 2022 and $1,500 more for 2023.)

Filers taking the standard deduction for 2022 or 2023 should evaluate whether it makes sense to “bunch” deductions to benefit from itemizing in some years. Often the best candidates for bunching are charitable donations. This move is harder for medical expenses, as many filers don’t have expenses greater than the 7.5% income threshold. For those who do, the service must be completed in the year of the deduction—so a parent can’t pay the full bill for a child’s orthodontia and deduct it for 2022 if the work isn’t finished until 2023.

Strategize charitable donations
There’s no $300 or $600 donation deduction for non-itemizers this year, unlike for 2020 and 2021. So givers should focus on three key tax breaks for donations. One is to bunch gifts and take them in some years but not others. For example, say Robert and Susan are married and give $10,000 a year to charity. But that and other deductions totaling $10,000 will come to less than the $25,900 standard deduction for 2022. By making two years of donations in either 2022 or 2023, the couple could take the standard deduction in one year and itemize for the other and maximize overall tax breaks.

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