Mid-Year Tax Planning Tips
August 04, 2022
To encourage consumers to shop locally and help them save on back-to-school purchases, several states across the country hold sales tax ‘holidays’ in August. For example, Massachusetts will waive its sales tax on retail items of up to $2,500 (purchased for personal use) on the weekend of the 13th and 14th; and Connecticut will exclude sales tax on clothing and footwear valued at $100 or less from the 21st to the 27th. 1
While tax holidays provide welcome savings, mid-year tax planning may offer more significant ways to potentially reduce your tax burden. For example:
Check that you are maximizing your retirement contributions. In 2022, the IRS increased the amount of annual pre-tax employee contributions to employer-sponsored retirement accounts (such as 401(k), 403(b), and 457(b) plans) by $1,000 to $20,500. And if you are 50 years or older, you can contribute up to $27,000 during 2022, with “catch-up” contributions. Many employers will fully or partially match employee contributions as well, and combined contribution limits for 2022 are $61,000 for those under 50 years and $67,500 for those 50 years and above. 2
Determine if you should invest in itemizable items this year. The standard tax deduction for married couples filing jointly is $25,900; for heads of households, it’s $19,400; and for single individuals or those married filing separately, it’s $12,950. If it looks like your qualified deductions might exceed your standard deduction amount, you may want to consider itemizing when you file in 2023. If so, it might make sense to incur itemizable expenses before 12/31/22. Things you may be able to itemize include:
- Medical and dental expenses
- Deductible taxes
- Home mortgage points
- Interest expenses
- Charitable contributions
- Business use of your home or car
- Business travel expenses
- Work-related education expenses
- Casualty, disaster, and theft losses 3
Consider harvesting your tax losses. Now is a good time to review your portfolio for positions you may want to sell or reduce, with a plan for using investment losses to reduce or eliminate capital gains. Your Washington Trust Wealth Advisor can help you customize a tax loss harvesting plan that works for your unique situation.
In addition to these potential tax-savings moves, it’s also a good idea to review your withholdings. If your income has changed, you owed a significant amount on your 2021 tax return, or you received a large refund, it may be a good idea to adjust your withholdings. You can use the IRS Tax-Withholding Estimator to estimate the amount of your federal withholdings and make an adjustment by updating your W-4 form.
Your Washington Trust Wealth Advisor helps you create a tax-plan and reviews it mid-year to identify potential ways you can save. Contact us to learn more!
[1] Federation of Tax Administrators
[2] Kiplingers, “Boost Your Retirement Savings in 2022”
[3] 2022 Federal Income Tax Brackets, Rates & Standard Deductions, U.S. Tax Center Staff, irs.com, June 8, 2022.
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