3 things I do in January to keep my 2022 tax bill down

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• You have until the tax filing deadline to contribute to retirement accounts such as a Roth IRA.
• If you are self-employed, make sure you are getting the most out of the deductions.
• If you have income other than a W-2, the IRS expects you to pay your tax obligations by the end of January.

At the top of my to-do list for the start of 2023, I made a note reminding me to call my accountant. Even though I have a few more months before I think about taxes, I wanted to know if there was anything I could do right now to help reduce my costs. 2022 tax bill.

As a solo entrepreneur whose income varies greatly each month, I’ve become strategic about trying to save money throughout the year so I can pay my tax bill all at once, without having to negotiate a payment plan with the IRS and get hit with interest. However, I hope I can use some of the money I saved in 2022 to pay for these expenses for other things, like investing in my business or in real estate.

That’s why I reached out to my accountant, Kate Galloand asked if there was anything I could do now to help reduce my 2022 tax bill. Here are the three recommendations you gave me and how I plan to take care of them before the end of January.

1. Contribute to retirement accounts

Just four years ago, when I turned 30, I decided to get serious about saving for retirement. opened a SEP IRA account And I tried to make monthly contributions, even though I forgot or didn’t have the cash to contribute some months. When I shared with my accountant that I had missed some contributions, she reminded me that it’s never too late to put money into my SEP IRA and count those payments as a 2022 deduction.

“Most people don’t realize that they have until the tax filing deadline for contributions for both traditional and Roth IRAas well as SEP IRAs and Queue accounts Gallo told the business owners. To qualify, a taxpayer must not be eligible to participate in a company-sponsored plan and meet certain adjusted income requirements.

My contributions to a SEP IRA are tax deductible. However, Gallo gave me an important reminder about Roth IRA contributions. While these contributions won’t directly lower your tax bill, withdrawals are tax deductible in retirement.

2. The maximum of all possible deductions

I’m in the process of collecting my business expenses to share with my accountant before tax season begins. With that in mind, I’ve shared another way I can lower my tax bill: Make sure I maximize all possible deductions.

Gallo said that while most self-employed individuals and business owners are familiar with the concept of Deduction of business related expensesThey sometimes leave money on the table by not considering other areas of their lives that they might be able to deduct from their income.

Some of these examples include home office or mileage deductions and any personal property depreciation that is used for business purposes.

He said, “Although non-self-employed individuals do not qualify for the above deductions, there are still opportunities to itemize deduction expenses such as medical expenses, health insurance costs, mortgage interest, property taxes, charitable donations, and more.” Gallo.

However, one thing to note is that these expenses must be more than the depositor’s standard deduction to qualify.

3. Avoid additional fees

One thing I as a taxpayer didn’t realize was how important it is to make sure you meet your filing requirements for the year. Gallo pointed out that the IRS expects you to pay your tax liability for the prior year by the end of January, which may not be common knowledge. However, if you are someone who receives all of your income on a W-2 and deducts properly, you will be covered.

However, if you receive any additional non-taxable income, which happens quite often in my role as a solo entrepreneur, it’s important that you pay discretionary tax to cover the income earned. If not, you may get a penalty.

“In general, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after deducting their withholding and refundable credits, or if they pay the withholding and tax assessed at least 90% of the tax for the current year or 100% of the tax withheld,” Gallo said. shown on the previous year’s yield, whichever is lower.

If you don’t meet those limits, she added, the IRS can charge you a 0.5% late penalty for each month you’re late with payments, which is something I’d like to avoid altogether.