It’s easy to only think of your taxes during tax season.
However, people who are financially savvy know making changes throughout the year gives you the best chance to lower your taxes before you file your return.
Now is as good a time as ever to make small adjustments that can have a big impact come tax time.
Check out these four easy ways to lower your taxes in 2022 before the end of the year.
1. Contribute to your retirement plan
If you have access to a retirement plan through your employer, consider increasing the amount withheld from each paycheck. Even with a modest increase in contributions, you still have time to lower your taxes significantly difference before December 31.
If you use a traditional 401(k), 403(b), or similar plan, your contributions reduce your taxable income for this year. Traditional and Roth IRAs allow you to add money after the end of the year up until you file your tax return. However, that doesn’t mean you should put off making an additional contribution.
It’s much easier to put the money aside little by little instead of trying to come up with the entire amount at tax time. By waiting, you risk not being able to contribute as much as you would have liked.
Plus, the sooner you contribute to your retirement plan, the sooner your money starts working for you.
2. Make cash and non-cash donations
Instead of waiting until December 31 to donate to your favorite charity, why not do it now? It’s the perfect time of the year to sort through clothes, kids’ toys, and any outdoor equipment you no longer need.
Donate unwanted items to a local charity, and get a receipt to document what you contributed. If you donate an item worth more than $250, the charitable organization should give you a statement that describes the item and whether you received anything of value in return. You are expected to supply the valuation of the donated items.
It’s also a good idea to make charitable cash contributions now. If you wait until after the holiday season, you may be more pressed for money.
To make it easy, set up a regular charitable contribution plan. In some cases, you can select a set amount to be deducted from your paycheck and directly deposited to a charity. Or you can set up a recurring charitable gift online.
If you plan to itemize your deductions, both cash and non-cash donations can help you lower your taxes.
3. Lower your taxes and save energy at the same time
It’s smart to think about the energy-saving measures you can take now to avoid large utility bills as the temperatures drop. Plus you can lower your taxes in the process. If you’re a homeowner, you may qualify for federal tax credits for making improvements or installing appliances designed to boost the energy efficiency of your home. Many states also offer energy efficiency tax incentives, often in the form of sales or property tax exemptions for purchasing or installing equipment.
When it comes to your federal taxes, the tax credit for solar investments is one of the biggest energy credits available to help you lower your taxes. The credit is worth 30 percent of the cost of buying and installing a solar system, which applies to both solar panel systems and solar hot water systems. There are many other incentives available outside of as well, including state credits and cash rebates.
If you install EnergyStar products in your home, you also may be eligible for tax credits on that purchase.
4. Organization is the secret to good planning
This time of year is also a good checkpoint to assess your finances. It’s hard to lower your taxes if you don’t know where you stand. Take the time to review your income and any tax-related expenses you accumulated so far this year.
Sort through receipts, organize important documents, and tuck them away in a safe spot so you won’t miss an important deduction when you file your return. Once your information is organized, set aside a few minutes to estimate your 2022 taxes. Doing so will help you determine if the right amount of tax is being withheld from your paycheck. Use the TaxAct Tax Calculator to quickly calculate your tax liability.
If you need to adjust your withholdings, complete a new Form W-4 and submit it to your employer’s payroll department.
If you’re self-employed, estimating your taxes is the best way to know if you’re paying enough in quarterly estimated taxes. Staying organized will help you make smart decisions for the rest of the year.