Money Matters: Staying up to date on taxes
There’s no time like the present to take steps to ease your tax burden for this year and beyond. Local financial professional Barry Bigelow from Great Waters Financial has tax planning tips to consider before the end of the year.
Many people think taxes are just an April to-do. But many people should know about tax planning year-round.
Barry says this is one of the biggest myths about tax planning! While we talk about taxes heavily leading into April, taxes are a big part of your financial future.
And that the sooner you can build a plan for your taxes now and in retirement, the more opportunity you have to potentially reduce your tax burden.
There also some big changes coming this year.
Child Tax Credit Expansion Expired
- When you filed your 2021 taxes in April, many families weren’t able to claim the Child Tax Credit like they had in years past because the American Rescue Plan expanded the Child Tax Credit to give monthly payments to families to help reduce child poverty.
- Families received monthly payments as an advance on their tax credit. Many families weren’t able to claim the full credit on their 2021 taxes, and some ended up owing because of it.
- Additionally, the American Rescue Plan increased the Child Tax Credit from $2,000 per child to $3,000 per child age 6 to 17 and $3,500 per child age 5 and under for the 2021 tax year. Because the Child Tax Credit expansion has expired, the Child Tax Credit returns to $2,000 per child for the 2022 tax year.
- The Child Tax Credit expansion expired, and families can now claim the full Child Tax Credit on their 2022 taxes.
Standard Deduction Increased
- We’ve seen standard deductions fluctuate over the years.
- For the 2022 filing year, the standard deduction will increase to $12,950 for single filers up from $12,550 from the previous year. And for married couples filing jointly the standard deduction has increased to $25,900 compared to $25,100 in 2021.
- If you experience any major life changes this year, like getting married, starting a business or having a baby, you will want to use these updated numbers to estimate your tax liability.
Charitable Deduction Expired
- For the 2020 and 2021 tax-filing years there was an above-the-line deduction for those who gave charitable cash contributions.
- The deduction allowed single filers to claim $300 in charitable contributions and married couples filing jointly could claim $600 in charitable contributions.
- This deduction has expired for the 2022 tax year.
And taxpayers can best prepare for the upcoming tax season by doing these things.
Adjust Your Withholding
- If you were surprised you owed money this past April, consider paying more in taxes year-round by adjusting your withholding. The same goes for people getting a large refund. You may want to reduce your withholding.
- Take the time now to strategically think about your tax situation. Ideally, you want to have just enough withheld so your refund is as close to 0 as possible.
- You can file all withholding adjustments with a W-4 form through your employer.
Diversify Your Assets
- Tax-free savings options offer tax advantages later. An account like a Roth IRA will give you tax diversification; your money is taxed upfront, but you can withdraw it tax-free in retirement.
- You may want to consider converting money from a traditional IRA or a previous employer’s 401(k) into a Roth IRA. We are in a historically low tax environment, meaning now might be a good time to consider moving money into a Roth.
- If you want to learn more about tax planning, follow Great Waters Financial on Facebook and LinkedIn.