15 Smart Tax Moves to Make This Year

Taxes can take a big chunk out of your income, but they're the price of living in a society.

While you have to give the IRS a cut of your earnings, you do have options for trying to reduce your tax bill.

By making these 15 smart tax moves in 2022, you can avoid paying more than necessary by taking full advantage of all of the savings opportunities on offer.

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There are multiple tax-advantaged retirement accounts available to you. They can be broadly divided into two categories:

• Traditional IRAs or 401(k)s, which provide an up-front tax break when you make a contribution. If you invest in them in 2022, you'll reduce your taxable income this year. But as a retiree, you must make taxable withdrawals.
• Roth 401(k)s and Roth IRAs, which provide no up-front tax break. If you invest in them in 2022, you won't save this year. But you can take withdrawals tax free in retirement.

If you expect your tax rate to go up after retiring, deferring your tax savings with a Roth is usually best. But if you think your rate will decline, traditional accounts may be a better fit.

Be sure to research each option so you can make the best choices about maximizing tax breaks.

Tax-advantaged retirement accounts have annual contribution limits. In 2022:

• You can make up to $6,000 in total contributions to a traditional and/or Roth IRA. If you're over 50, you can contribute an additional $1,000.
• You can contribute up to $20,500 to a traditional or Roth 401(k). If you are over 50, you can make an additional $6,500 catch-up contribution.

The more you contribute to these accounts, the bigger your tax savings will be -- and the more help you'll get from Uncle Sam in investing for your future.

ALSO READ: The Secret to Maxing Out Your Roth IRA in 2022

If you have a qualifying high-deductible health plan and are eligible for a health savings account (HSA), you should also try to max out your contributions to it in 2022.

HSAs offer an up-front tax break for contributions. If money is withdrawn for medical care, you can also withdraw it tax free. Or you can take out money for any reason in retirement and simply pay taxes at your ordinary rate.

Money you put into an HSA can be invested and used on your schedule, so you can use it as another way to score a tax break for retirement savings if you don't need the money to cover medical costs incurred this year.

You may be eligible for a flexible spending account (FSA) at work that allows you to put aside pre-tax money for medical care costs. There are also dependent care FSAs you can use to pay for childcare with pre-tax funds.

If you have access to an FSA, consider investing in it to save on taxes and allow the government to subsidize some of your care costs.

Just be aware that FSA money is generally use it or lose it, so don't invest more than you'll need to spend on qualifying expenses in 2022.

A 529 plan can provide tax savings for educational costs.

While you can't deduct the amount you contribute to your 529 from your federal taxes, some states do provide an immediate up-front deduction in the year of your contributions.

Money can grow in these accounts and be withdrawn tax free if used for qualifying educational expenditures, providing future tax savings.

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While receiving a tax refund may seem attractive, it actually means you've given the IRS an interest-free loan.

If you get back money when you file your taxes, adjust your withholding with your employer so you don't get a large refund. This way, you can keep more of your money to use during the year.

ALSO READ: 2 Reasons You Don't Want a Tax Refund

There are many different tax credits and deductions you could potentially claim, including:

• The Saver's Credit
• Tax credits for educational costs, such as the American Opportunity Tax Credit
• Deductions for student loan interest

It's a good idea to research all of the different tax-savings opportunities available so you can save as much as possible. These guides to tax deductions and tax credits can help.

You will have to decide between itemizing deductions and claiming a standard deduction when filing taxes.

The standard deduction is a flat amount and based on your filing status rather than any specific expenditures you've incurred. Itemizing, on the other hand, allows you to deduct for specific expenses such as property taxes or mortgage interest paid.

You'll want to compare how much you could save with each option to decide which is right for you.

When you sell investments and make a profit, you may owe capital gains taxes.

Short-term capital gains taxes apply if you've held the asset for a year or less. This means you pay taxes at your ordinary rate. But if you own your assets for more than a year, you can pay taxes at the lower long-term capital gains tax rate. In some cases, this could be as low as 0%.

If you can, waiting to sell profitable assets to pay lower taxes on your gains can make a huge difference in your tax bill -- and in the returns you get to keep.

If you have assets that you've lost money on, you can claim capital losses. These offset your capital gains. And if you have more losses than gains, you can offset up to $3,000 in ordinary income.

If you're unlikely to recover the money you've lost, you can slash your tax bill by being strategic about selling your assets during years when you have gains.

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You can score a deduction for charitable contributions that you make if you itemize your deductions.

You can actually claim a deduction both for monetary contributions and goods you donate, although there's a cap on how much of your income you can deduct each year based on charitable giving.

ALSO READ: Is There a Limit to Charitable Giving for Taxes?

If you don't have enough deductible expenses to itemize each year, you can consider bunching deductions so itemizing makes sense and saves you more.

For example, if you plan to give $5,000 to a charity each year, it may make sense to give nothing during one year when you won't itemize and then giving $10,000 the next year when you can itemize and claim a deduction for your generosity.

It's important to make sure you file your taxes by the deadline and make all payments on time in order to avoid late fees and other penalties.

Make sure you not only know when your tax returns are due but also are aware of other deadlines such as the dates for filing quarterly estimated taxes if you have nonemployment income.

E-filing your taxes and requesting any refund via direct deposit is the fastest way to get back any extra money you've paid to the IRS. The vast majority of refunds are paid within 21 days if you've taken these two steps.

E-filing is free for taxpayers, either using specialized tax software or free fillable forms depending on your income. The IRS provides information on how to electronically submit returns for free.

President Joe Biden proposed a number of changes to the tax code, several of which could be implemented as early as 2022 if his Build Back Better legislation passes.

Although it's not yet clear if lawmakers will pass any tax reform bills this year, it's worth paying attention to efforts to change the tax code so you can make your opinion heard by contacting your legislators.

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Making these tax moves can leave more money in your pocket that you can use to accomplish other goals.

Consider making as many of them as you can in 2022 so you can set yourself up to keep more of your hard-earned cash instead of sending it all to the IRS.

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