Don't Wait until December - 2022 Tax Planning
Why put off until December what you can do today? As we enter the final months of 2022, it’s time to start considering planning strategies for the year that may help lower your tax bill. Review the list below to see if there are steps you can take now to reduce your 2022 tax bill.
Practice Planning Strategies
Find out if your state allows a Pass-Through Entity tax deduction
Over 29 state have passed new regulations that allow you as a practice owner to pay state income tax on the practice profit directly from the practice. If the payment is processed before the end of the year, the state tax payment is considered a fully deductible practice cost and will reduce your federal income tax. For more details, check out our blog post or get in touch.
Monitor Business Income and Deductions
While no one can predict the future, the consensus is that tax rates will not increase in 2023, so consider deferring income into 2023 and accelerating deductions before the end of 2022. Some common methods include holding off on collecting large patient deposits in December, paying your January dental supply bill early and/or prepay for that CE course you have planned. Warning: This strategy may be counterproductive if you anticipate being in a higher tax bracket in 2023, so consult your tax advisor regarding your specific situation.
Personal Planning Strategies
Maximize your 401k deferral contributions.
Make sure you are on track so that your 401(k) contributions will be maxed out by year end. The 2022 contribution limit is $20,500 with an additional $6,500 catch-up contribution if you are 50 or older. If you turn 50 during 2022, make sure your payroll is set for the additional contributions.
Also, consider whether contributions to a ROTH 401(k) would be more beneficial. This would cause your current contribution to be after-tax, resulting in higher, not lower taxes. This strategy works best when you are younger and not taxed at the highest rates.
Health Savings Account
Make sure you are on track to maximize your HSA contributions by year end. The 2022 maximum contribution is $3,650 for individual plans and $7,300 for family plans. If you are 55 or older, you can contribute an additional $1,000 catch-up contribution. If possible, try to stay healthy and not use the dollars saved in the HSA account, as this account can be used like another tax deferred retirement account and provide for future tax free withdrawals. Your health insurance plan must be an HSA-eligible plan to take advantage of this.Monitor your Non-Retirement Investment Portfolio
Monitor the markets and harvest tax losses to offset capital gains if it makes sense considering your overall investment strategy. Work with your financial advisor to determine if it is appropriate to take losses given historically weak market performance to date, and help offset any capital gains that you may have.
Fund and convert a Backdoor ROTH before 12/31/2022
Congress has still not closed this tax loophole so get around the IRA limits by making a non-deductible IRA contribution of up to $6,000 ($7,000 if over 50) and then immediately converting it to a ROTH. This strategy will not reduce your taxes this year but is part of a longer term strategy to avoid taxes in retirement. By doing it before the end of the year, you ensure that it matches up with the 2022 tax year.
Plan for Charitable Contributions
In 2022, taxpayers who take the standard deduction are no longer allowed a small charity credit, and the charitable contributions limit returns to 60% of your adjusted gross income. As such, you will need to contribute beyond the standard deduction to ensure your charitable deductions are optimized.
Tax Planning is Complex
The list above highlights general tax planning ideas. Just like every patient’s mouth is different, every tax situation is different. With the constantly changing economic and tax environment, we highly recommend you discuss your tax situation with your tax advisors (hopefully, that is JNG Advisors).