2022 Year-End Financial Punchlist

With 2023 just around the corner, there are just a few weeks to finalize any year-end financial to-do lists for 2022.

Here are seven strategies to consider before the holiday season.

1. Use your Flexing Spending Account (FSA) balance

If FSA money isn’t spent by year-end, you could potentially lose the balance when the calendar changes. The three types of FSAs are:

• Health care FSA
• Limited purpose FSA
• Dependent care FSA

Some employers allow a portion of your FSA balance to roll over into the next year but not all. Therefore, be sure you understand how your FSA plan works to best determine how to take advantage of unused funds.

2. Roth IRA conversions or IRA distributions

• Do you find yourself in a unique tax position this year?
• Did you transition from residency/fellowship to an attending physician role?
• Is your taxable income considerably lower than usual because you are retired and haven’t taken taxable distributions from your accounts?

There are a variety of reasons one could be in a low-income tax bracket in 2022. If you find yourself in this position, it may be valuable for you to convert pre-tax IRA or 401(k) funds to a Roth IRA or simply take IRA distributions to take advantage of your low-income tax bracket. Nonetheless, if you want to utilize one of these strategies, be sure to have the transaction completed by the last business day of 2022, which is December 30th.

3. Contribute to tax-advantaged accounts

Some accounts are eligible to receive contributions until next year’s tax-filing deadline in April. Other accounts, such as workplace retirement plans [401(k)s, 403(b)s, and 457(b)s], do not have the same luxury. Therefore, if you are currently short of maximizing your 2022 contributions ($20,500 or $27,000 if over 50), this may be your final opportunity to adjust your final pay cycle for 2022.

Keep in mind that certain states also provide tax deductions for contributions to 529 plans. Some state plans have a year-end deadline to qualify for tax benefits.

Finally, although you are eligible to contribute to a Health Savings Account up until the April tax-filing deadline, it is typically advantageous to maximize your contributions through payroll deduction to avoid incurring FICA taxes. As mentioned above, this may be your last opportunity to make a change to your payroll deductions.

4. Charitable contributions and donations

If you itemize your tax deductions, you can deduct charitable donations from your taxes. Depending on which assets (cash or investments) you donate to charity, you could be eligible for a deduction ranging from 30%-60% of your Adjusted Gross Income. To ensure you receive the deduction for the tax year 2022, be sure any of your philanthropic goals are funded in 2022.

5. Is your portfolio subjecting you to capital gains in 2022

Despite the volatility investors have experienced in 2022, some mutual funds and investment portfolios may still distribute capital gains. To mitigate or eliminate these gains in your taxable investment accounts, you can sell investments that are down, replace them with reasonably similar ones, and offset the realized gains. This allows you to reduce your potential tax liability while staying fully invested. 

Investment account losses can be used in two ways:

1. Offset other investment gains
2. Offset up to $3,000 of ordinary income annually on a joint tax return

You’ll need to harvest losses by December 31st for them to get recorded on your 2022 tax return.

6. Annual gifting opportunities

Does your wealth exceed the current lifetime gift tax exemption of $12,060,000 (per person)? If so, take advantage of the 2022 annual gift exclusion to transfer wealth to future generations or to make a tax-free transfer on behalf of another individual by paying education or medical expenses directly to the provider. The 2022 annual gift exclusion allows for tax-free gifts up to $16,000 per donor without counting toward your lifetime gifting exemption.

7. Prepare for 2023 limits (401k, HSA)

Now that the IRS has announced the 2023 retirement plan and other tax-advantaged account contribution limits, year-end is a good time to make the appropriate adjustments to your payroll withholdings to ensure you maximize your savings starting in January 2023.

The 401(k), 403(b), and 457(b) contribution limits for 2023 have increased to $22,500, and if you are age 50 or older, the limit for 2023 is $30,000.

Be Ready to Take on the New Year!

With the new year just weeks away, it is essential to make time to consider how you want to end the year. Sometimes it can feel like the year has disappeared before your eyes. And when you look back over the previous month, you may find yourself surprised about what transpired, whether in terms of the global economy or your personal economy. That is why it makes sense to focus on ending the year on a solid note, knowing that it can help set yourself up to be better able to accomplish your goals in the next year. If you are looking for assistance in how best to start the new year off on the right foot to help you focus on your goals, please get in touch with one of our financial planners.

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