As the new year approaches, so does my favorite time of the year: tax season.
Mind you, it’s not because I enjoy paying taxes, but because I enjoy trying to save other people money on their taxes through the IRS’ Volunteer Income Tax Assistance (VITA) program.
The best time to lower your own taxes, however, is before the year ends — as in right now.
With a little planning and some research, making the following tax moves before Dec. 31 might help you to owe less taxes or receive a bigger refund on your 2022 tax return, the one that’s due by April 2023.
Put money in traditional retirement accounts
Unlike contributions to Roth retirement accounts, those to traditional retirement accounts are tax-deductible upfront. So if you put money in a traditional account in 2022, it stands to lower your taxable income for 2022.
For most types of employer-sponsored retirement accounts, the IRS allows a contribution of up to $20,500 for 2022. If you’re 50 or older, that amount increases to $27,000. These amounts do not include any contributions made by your employer on your behalf, either.
Although saving upwards of $20,000 in one year might seem daunting, every little bit counts. For example, a $5,000 contribution to a traditional 401(k) account could potentially save you $1,100 on your taxes if your tax rate is 22%.
Typically, the deadline for contributions into employer-sponsored retirement accounts is Dec. 31….
