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3 Ways To Maximize Your Tax Breaks In 2022

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You may not know that there are a number of ways to maximize your tax breaks. What we wanted to do is give you three to understand right now, especially as one may no longer be an option soon.

So here are the three ways you can help yourself with tax breaks in 2022.

Roth conversions – this option may be going away due to tax law changes. Now is the time to take advantage of them.

What are Roth conversions?  Let me explain it this way. You have money in a traditional retirement account or a 401 (k) and you take that money and move it into a Roth IRA. And for those of you that may not know what an IRA is, it’s an Individual Retirement Account.

When you move your retirement savings from an IRA into the Roth IRA you pay taxes on it as if it was taxable income. You might ask how this creates a tax break, well there is a high probability that taxes are going up over the next few decades. If distributions come out of the Roth tax free at retirement, then account owners benefit from not paying taxes on those distributions.

By having both Traditional (pre-tax) and Roth (post-tax) retirement accounts, investors have more ‘tax levers’ to pull, in retirement, as they can determine which account is the best to take distributions from. That way you can better manage your taxes in retirement, depending on how the situation evolves. 

Maximize your tax deductions. 

Every year, billions of dollars are left on the table by not taking advantage of all that is available in terms of legitimate tax deductions. There is great benefit in working with a tax professional who can help you find hidden tax savings.

According to TurboTax the ten most overlooked tax deductions are:
1. State Sales Tax – in applicable states of course,

  1. Reinvested Dividends
  2. Out-of-Pocket Charitable Contributions
  3. Student Loan Interest paid by you or someone else
  4. Moving Expenses
  5. Child and Dependent Care Tax Credit
  6. Earned Income Tax Credit (EITC)
  7. State tax you paid last Spring
  8. Refinancing mortgage points
  9. Jury pay paid to employer

    The best way to check out what you are eligible for, in terms of any hidden deductions, is to talk to a Tax Professional.

Tax credits often outweigh tax deductions. 

Take advantage of things like the Child and Dependent Care Tax Credit, Lifetime Learning Credit, or credits for electric vehicles to name a few.

The IRS has a list of credits available under these different headings:

– Family and Dependent Credits

– Income and Savings Credits

– Homeowner Credits

– Health Care Credits

– Education Credits

Each tax credit list under these areas have specific criteria that needs to be met in order to qualify for it. 

The best thing you can do is to be aware that these credits exist and to check in with a professional with regards to those that you may be eligible for.

Tax breaks are there for a reason. Educate yourself on them and get the advice and support you need when filing your taxes. Why not take advantage of these sorts of tax breaks when they are available to you?

 

References

 https://www.forbes.com/sites/jamiehopkins/2021/12/16/converting-to-a-roth-dont-fall-into-these-traps/?sh=7415e9ff6817

The 10 Most Overlooked Tax Deductions – TurboTax Tax Tips & Videos

Credits & Deductions for Individuals | Internal Revenue Service

 

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