Tax season will be here before you know it, so start getting ready now. You can file as early as January, although you have more time if you need it. It’s important to take the time to review where 2021 has left you and see if there are things about your taxes that may have changed from when you filed last.
The Charitable Giving Rules Have Changed
If you itemize your taxes, you can deduct qualified charitable contributions. Normally, there is a cap on how much someone can donate to charity tax-free—this cap is 60% of a taxpayer’s AGI (Adjusted Gross Income). However, the CARES Act raised this limit to 100% of AGI for the 2020 and 2021 tax years. There is also a provision that allows individual taxpayers who don’t itemize to deduct up to $300 in charitable donations and married couples filing jointly to deduct up to $600 in 2021. However, this year, the tax break is no longer “above the line,” meaning that a charitable donation cannot be subtracted from adjusted gross income.[1]
Will You Contribute More to Your 401(k) Next Year?
Know how much you can contribute to a 401(k), IRA, or other retirement accounts. The IRA contribution limit didn’t go up for 2022; it remained at $6,000 for workers under 50 and $7,000 for workers 50 and older. However, 401(k) contribution limits increased for 2022, from $19,500 to $20,500. Workers 50 and older can contribute an additional $6,500, for a total of $27,000 in 2022. Also, consider if you should do a Roth conversion.
Do You Need to Check Your Withholding?
You should check your withholding at the end of every year, especially as you near and enter retirement. If you’ve retired, keep in mind that pension and annuity payments are subject to withholding just as wage income is. Other examples of non-wage income you may be receiving in retirement are stock dividends, income from side businesses, and interest. If these increase, you may need to adjust your withholding to avoid a large tax bill. If you picked up a side job, know that you can’t claim the same allowances for both jobs, but you may split allowances between the two.
Sign up for a time to talk to us at Accelerated Wealth about your goals for 2022 and your long-term tax strategy. We could see higher taxes in the future, and now is the time to prepare. Tax filing season is the perfect time to start thinking about your strategy and review your finances from 2021.
