These 4 mid-year tax strategies can trim next year’s bill from the IRS

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1. Review tax deductions

When you start a new job, you fill out Form W-4, which covers how much your employer withholds from your federal tax payroll checks.

But you need to review those restraints, especially for major life changes like getting married, having kids, or starting a side issue.

Top reasons to adjust your withholding:

1. Tax law changes

2. Lifestyle changes such as marriage, divorce or children

3. New jobs, side jobs or unemployment

4. Tax Deductions and Credit Shifts

You can use the IRS tax withholding estimator to see if you’re on track, or perform projections with an advisor for more complex situations.

And if you expect a deficit, there is plenty of time to adjust your tax withholding or make estimated payments for the third or fourth quarter, Guarino said.

2. Increase 401 (k) contributions

If there is room for maneuver in your budget, you may want to consider boosting your pre-tax retirement savings, which will reduce your adjusted gross income.

“If you can, now is a good time to increase 401 (k) contributions,” said Christopher Lyman, a Newtown, Pennsylvania-based CFP with Allied Financial Advisors.

You can save $ 20,500 in your 401 (k) for 2022, with an extra $ 6,500 if you are 50 or older. Regardless of your savings goal, it can be easier to achieve by increasing your postponement now.

3. Weigh Roth IRA Conversions

With the stock market from the beginning of the year, there is a chance to save on so-called Roth individual retirement account conversions.

Here’s how it works: After making non-deductible contributions to a pre-tax IRA, you can convert the funds to a Roth IRA. While the move is driving tax-free growth, the consideration is to pay advance levies on contributions and earnings.

However, a downward market could be a good time to pay taxes on the assets you want to convert, Lyman said.

For example, let’s say you invested $ 100,000 in a pre-tax IRA and now it’s worth $ 75,000. You can save on taxes as you will be converting $ 75,000 rather than the original $ 100,000.

Of course, you will need a plan to cover those levies, and increased income could have other tax consequences, such as higher future Medicare Part B premiums.

4. Consider tax-loss harvest

Another opportunity when the stock market declines is tax-loss harvest, or the use of losses to offset profits, says Devin Pope, a CFP and partner at Albion Financial Group in Salt Lake City.

“We are doing this for our customers at the moment,” he said.

You can sell declining assets from a brokerage account and use those losses to reduce other profits. And once losses exceed profits, you can deduct up to $ 3,000 a year from regular income.

However, you should be on the lookout for the “wax sale rule”, which prevents you from buying a “substantially identical” asset 30 days before or after the sale.

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