By Mark Ziety, CFP®, AIF®, Senior Advisor, WisMed Financial
Want to put thousands of dollars back into your pocket? Who doesn’t. Choices you make during your employer’s open enrollment period and for year-end tax planning can really add up.
Consider a married couple with $250,000 of income, two kids, a home and $100,000 in a taxable non-retirement investment account. What can they do?
- Add the maximum to a health savings account (HSA) if insured by a high-deductible health plan. Otherwise, adjust the 2023 contributions to efficiently utilize a flexible spending account (FSA). Approximate tax savings are $1,750 federal plus $387 state.
- Time property tax payments. With the current $10,000 cap on federal deductions for state and local taxes (SALT) through 2025, most taxpayers don’t receive a federal deduction for paying property taxes. However, on the Wisconsin tax return, a tax credit worth $300 is available for paying $2,500 in property taxes each year. If last year’s property taxes were paid in December of 2021, pay up to $2,500 of this year’s taxes by December 31, 2022 and the remainder by the due date in 2023 to save $300 in taxes.
- Contribute to each child’s Edvest 529 college savings plan. The first $3,560 contributed per beneficiary for 2022 is deductible on Wisconsin income taxes for a tax savings of $377.
- Realize capital losses in non-retirement investments. Tax savings could be up to $720 federal and $26 state for 2022 with additional losses banked for future tax years.
- Group charitable gifts into 2022 or 2023 if itemizing deductions is possible either year. Boost the charitable tax savings by giving appreciated investments instead of cash which avoids capital gain taxes. Use a donor advised fund (charitable account) to bunch multiple years of charitable gift deductions into one tax year. Tax savings depend on individual circumstances.
- Increase 403(b) or 401(k) contributions to the maximum. Approximate tax deferral is $9,840 federal and $2,173 state.
- Transfer $12,000 from the taxable investment to backdoor Roth IRAs at $6,000 each. Tax savings depends on individual circumstances. For a 40-year-old couple, this annual strategy saves $96,740 in taxes through age 60.
The first four items reduce 2022 taxes by $2,910. Add in some of the longer-term strategies, and tax planning is easily worth more than $100,000 over time!
This is just part of the strategy for 2022. To receive the entire 2-page checklist for 2022, download your copy instantly.
For personalized help eliminating debt, investing smart and securing retirement, please contact Mark Ziety, CFP®, AIF® 608.442.3750.
Mark Ziety, CFP®, AIF®
WisMed Financial, Inc. part of the Wisconsin Medical Society