Tax filing season officially begins early next year, but there are many tax-saving measures you must take before December 31.
Some of the most profitable projects come from Inflation reduction methodwhich offers enhanced tax credits to upgrade energy efficiency Your home and car buyers provide electricity for their vehicles. Others include the usual deductions for charitable contributions, 401(k) funds and securities losses.If you’re a senior, you also need to know Minimum allocation required (RMD) rule, changed to SECURE Act 2.0otherwise you will face severe penalties.
This may sound complicated and time-consuming, especially during the busy year-end holiday season. So we’re going to break it down for you here so you can act quickly to take advantage of as many tax-saving initiatives as possible before time runs out.
What energy-efficient home improvements qualify for tax credits?
possible improvements Qualify for tax credits include:
Household Clean Power Products
Heating, cooling and hot water
Electric or natural gas heat pump; electric or natural gas heat pump water heater; central air conditioner; natural gas or propane or oil water heater; natural gas or propane or oil furnace or hot water boiler Meet or exceed specific efficiency ratings established by the Energy Efficiency Alliance.
Solar hot water products, Performance certification by a solar rating certification company or similar entity recognized by the state government where the product is installed.
Other energy efficiency upgrades
Oil furnace or hot water boiler Meets or exceeds 2021 ENERGY STAR efficiency standards and is rated by the manufacturer for use with a fuel blend consisting of at least 20% by volume of qualified fuel.
Distribution panel, sub-distribution panel, branch circuit or feeder Installed in accordance with the National Electrical Code with a load capacity of 200 amps or more.
Insulating materials and systems Comply with international energy conservation standards.
exterior window Meets Energy Star requirements for maximum efficiency.
How big is the tax credit for home energy improvements?
The amount of credit you can receive is typically 30% of the total renovation cost in the year of installation. However, some projects are up to a certain dollar amount each year, but there is no lifetime limit, meaning you can spread out your home improvements each year and earn the maximum points.Please check for details Department of Energy website.
To claim the credit, submit documentation to the IRS Form 5695 As well as your tax return and receipts.
What tax credits are available to car buyers?
If you are still looking for a personal use vehicle in the United States and purchase and take delivery of a new plug-in electric vehicle (EV) or fuel cell vehicle (FCV) before the end of the year, you may qualify for a Clean Vehicle Tax credit Up to $7,500.
Adjusted gross income for this year or last year must be below the following thresholds to qualify:
Married couple filing jointly $300,000
Head of Household $225,000
$150,000 for all other filers
The seller must also provide you with information about you vehicle qualifications and register online and report the same information to the IRS. If they don’t, your vehicle won’t be eligible for credit, IRS warning.
To claim your credit, please submit Form 8936, Qualified Plug-in Electric Vehicle Credit (Includes Qualified Two-Wheel Plug-in Electric Vehicles) Along with your tax return and provide your vehicle identification number.
Has your 401(k) maxed out?
Enrich your company’s 401(k) If you haven’t already done so, your donation is tax deductible unless made in Roth 401(k)A Roth 401(k) is funded with after-tax dollars, so your withdrawals are tax-free later.
Can’t pay the maximum amount for your 401(k) contributions? Try to pay at least the amount your employer is willing to match. You can also deduct employer contributions.
Have you finished giving away your gifts?
Generally, you can deduct up to 60% of your adjusted gross income. Appreciated assets (including long-term appreciating stocks and real estate) are generally deductible at their fair market value, up to 30% of your adjusted gross income, as long as you hold the assets for more than a year. Adjusted gross income.
If you’re not sure yet which organizations you want to donate to, you can set up a Donor Advised Fund (DAF), put the money into it, take the tax deductions, and then decide how to allocate the money. Just make sure you complete all the paperwork correctly to claim your tax deduction.
“The DAF must send a letter by the end of the year confirming the donation, describing the assets and value,” said Ryan Losi, executive vice president of CPA firm PIASCIK.
Have you cleaned up your portfolio?
Check your portfolio to take advantage tax loss harvestingwhere you sell the asset at a loss to offset taxable capital gains and potentially up to $3,000 of ordinary income.
Let’s say you have a capital gain of $20,000 and a loss of $25,000. You can offset the entire $20,000 gain with a $20,000 loss and apply the $3,000 loss to your ordinary income to further reduce your taxes. Assuming a 35% tax rate, you save $8,050 in taxes (potential tax on a $20,000 gain is $20,000 x 35% = $7,000, offset by the loss, plus $3,000 x 35% = $1,050 from ordinary income tax savings from reduction).
You still have a $2,000 loss that can be used against next year’s gain or income.
If you are a senior, do you know the RMD rules?
several RMD Tax experts say rule changes since 2020 have left many seniors confused about whether they must withdraw RMDs from taxable retirement accounts this year. This is one thing you don’t want to make wrong because “the penalties are pretty severe,” points out Mark Steber, chief tax information officer at tax advisor Jackson Hewitt.
If the account owner fails to withdraw the full RMD by the maturity date, the unwithdrawn amount is subject to a 25% excise tax, and if the RMD is corrected within two years, a 10% excise tax may be imposed, IRS saysIf you have a “reasonable” reason and are working on fixing the problem, you can ask for the penalty to be waived.
To make things easier and avoid penaltiesknow when you’re 72, Losey said.
If you are 72 or older this year, your first RMD must be taken by April 1, 2025, the 2024 tax year. No RMD is required this year.
If you are celebrating a 72nd birthdayUnknown date. Birthday forward December 31, 2022, then you should claim your first RMD by April 1 and your next RMD by December 31.
“If you didn’t receive relief in April, apply for relief,” Losey said. Because of the confusion, “the IRS is going to be lenient.”
RMDs are taxed as ordinary income in the tax year they are earned, but if you are at least 70-½ years old, you can avoid the tax by making contributions directly from your family. Individual Retirement Account (IRA) Give to charity. In 2023, you can donate up to $100,000 as Qualified Charitable DistributionsYou will not receive a tax deduction for the donation, but the donation amount can be used to satisfy all or part of your RMD without increasing your taxable income.
“The worst thing you can do is if you accept standard deductiontake $5,000 out of your IRA, pay the taxes, and then write a $5,000 check to your church or somewhere else and get nothing out of it,” Steber said.
Medora Lee is USA TODAY’s money, markets and personal finance reporter. You can contact her at email@example.com and subscribe to our free Daily Finance newsletter every Monday through Friday for personal finance tips and business news.
This article originally appeared in USA Today: How to save on taxes: Steps to take before the end of the year