3 Ways to Save Money in Taxes
Even though tax season just ended, it's that time of the year to start planning for next year. Nows the time to start thinking about different tax-saving strategies.
Thinking about taxes can be a painful thought. However, it doesn't have to be painful. Planning can save you heartache in the coming months.
As taxpayers, it's essential to consider your situation and take proactive steps so you don't end up owing the IRS money come April 14th, 2022.
To avert any unpleasant surprises at tax time, here are 3 ways for you to save money in taxes in 2022.
Go Green and Save
Are you the type that genuinely cares about the environment? In this day and age, people are becoming more environmentally conscious.
You can conserve money on your taxes by helping the planet, all while reducing your energy bill. Take advantage of some incentives, which are listed below:
· Renewable energy incentives
· Alternative motor vehicle tax credit
· Electronics recycling
One of the more notable but lesser-known and less prominent tax credits is renewable home energy systems. The credit covers 30% of solar electric, solar water heating, and small wind energy properties placed in service after December 31st, 2016.
Credits for alternative vehicles are expiring, but the government still offers tax breaks to those who purchased hybrid cars. The amount of credit varies depending on what type of car you buy and the date of manufacturing.
The US government created the alternative motor vehicle tax credit to promote fuel-cell motor vehicles. Riding on the wind of innovation, you can now get a credit for purchasing an eco-friendly alternative to your gas-powered car. To meet the criteria for the alternative motor vehicle tax credit, you must meet the following criteria:
· Purchasing your care before 2017
· You are the initial owner of the vehicle
· The car is driven primarily in the US
If you donate your old electronics, like cellphones or computers, you can get a tax break in return. You must make sure your donation is going to a qualifying nonprofit. If it's worth less than $500, there are no forms necessary, but if it exceeds $500 in fair market value, you must fill out form 8283, which lists the names of organizations receiving the donations.
Tax-Loss Harvesting
If you're involved with buying and selling stock and haves losses, selling those losses can offset gains at the end of the fiscal year. The best part about tax-loss harvesting is that if you have capital losses greater than $3,000, you can carry that loss over to future years, reducing ordinary income.
Planning is crucial when it comes to your investment portfolio. That's why you have to talk to your trusted advisor about your portfolio. If you decide to implement this strategy, it's crucial to recognize the IRS wash-sale rule, which disallows investors from deducting losses from sales or trades and then rebuying the security or a duplicate stock or security within 30 days of the sale.
Are you ready to see how much your tax bill is next year? Here at Mark Cherry's, we can calculate your taxable income based on your tax-loss harvesting plan.
Make Charitable Contributions
Those who donate to a 501(c)(3) public charity can receive a financial incentive. Donating to charities can reduce your taxable income and your tax bill.
If you decide to itemize rather than take the standard deduction, you can reduce your tax bill significantly. Generally, you'd itemize when the collective total of your anticipated deductions – including charitable gifts- add up to more than the standard deduction.
Below is a table of 2021-2022 standard deductions:
|
Filing Status |
Amount
|
|
Single |
$12,550 |
|
Married Filing Jointly |
$25,100 |
|
Head of Household |
$18,800 |
What you need to do is make a list of all of your deductions from the year. Some examples are below:
· Mortgage interest
· State and local tax
· Charitable giving
· Medical and dental expenses
Then you need to make sure they all add up more than your standard deduction to qualify for itemizing.
Save Your Tax Money
Taxes can be a considerable burden. However, learning to plan out how you can save money in taxes is crucial, especially when it comes to retirement. So why not take on strategies that benefit the greater good?
Going green with energy tax credits can help you reduce your tax bill, such as installing solar panels. Or you can choose tax-loss harvesting, which helps you offset capital gains from investments.
ITemizeing might be your best option for the upcoming year. Why not start contributing to a charity?
Either way, we recommend incorporating these strategies into your financial life that can make a huge impact come tax season.
Contact Mark Cherry CPA, LLC today and let us help you with building a tax-saving strategy.