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By Maurie Backman, The Motley Fool
As we settle into the last couple of months of 2022, many of us will no doubt be focused on upcoming events like the holidays. But it's important to give your tax situation some much-needed attention, too. Here are a few key moves it pays to make before 2022 wraps up.
Read more: 7 Income Tax Breaks Being Eroded by Inflation
1. Put in for higher 401(k) contributions
If you're saving for retirement in an IRA, you actually have until next year's tax-filing deadline to finish maxing out your 2022 contributions. But if you're saving in a 401(k) plan through your employer, any contribution you want to count for the 2022 tax year needs to be made by Dec. 31. If you haven't yet maxed out your 401(k) and are able to either do so or increase your savings rate, then it pays to tell your payroll department to change your contributions soon.It could take a couple of pay periods for your payroll team to process that sort of request. And if you wait too long to put in for a higher 401(k) deduction from your upcoming paychecks, you might miss out on that opportunity.
Meanwhile, if you're saving in a traditional 401(k) plan (as opposed to a Roth), the contributions you make go in tax-free. So the more you save in your 401(k), up to the maximum allowable limit of $20,500 for workers under 50 and $27,000 for those 50 and over, the less 2022 income the IRS will tax you on.
2. Start scheduling medical appointments to spend down your FSA
Since FSA contributions go in tax-free, just like traditional 401(k) contributions, these plans are a great way to lower your IRS burden. But the problem with FSAs is that any funds you put into your account that you don't spend by the end of your plan year could end up being forfeited.Now, perhaps your FSA comes with a grace period that gives you a little extra time in 2023 to spend your money. Or, you may have the option to carry over a limited amount of your balance. But if that's not the case, you'll want to start scheduling medical appointments for late 2022 so you can spend your plan balance and avoid giving up money that's yours.
3. Meet with a tax professional
If you've never gotten advice from a tax professional, now's a good time to do so. Consulting with a tax professional could help you devise a strategy that saves you money on taxes not just in 2022, but also, going forward.A tax professional might also have advice specific to the current year that could help you avoid owing the IRS more than you've bargained for. Let's say you're self-employed and have seen a boost in your income this year, only based on your estimated quarterly tax payments, your tax professional fears you might end up owing the IRS a large chunk during next year's tax season. At that point, you may be advised to defer some income to 2023 (for example, hold off on invoicing for late-in-the-year projects) to even things out.
Read more: How Long It Will Take to Get Your Tax Refund in 2022
Many of us don't exactly have taxes on our minds at this point of the year. But it's a good idea to tackle these specific moves in the coming weeks -- before you get all wrapped up in that holiday hoopla.
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