3 Moves You Can Make Before the End of 2022 to Lower Your Taxes

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  • Taking advantage of tax breaks could result in a lower IRS bill.
  • You still have a couple of months left to make some key changes that shrink your tax bill.
  • Consider adding more to your 401(k) or HSA, or unloading an underperforming stock.

Check these off your list if you want to pay the IRS less.

There are certain things people have a tendency to clash on -- think politics, TV shows, and food choices (you either love sushi or you hate it). But when it comes to taxes, most people are in agreement about one thing -- it's better to pay the IRS less money rather than more. And if your goal is to close out 2022 with a lower tax bill, then here are some key moves to make before the year comes to an end.

1. Ramp up your 401(k) contributions

If you're saving for retirement in an IRA, you have until next year's tax-filing deadline to finish making contributions for the 2022 tax year. But if you're saving in a 401(k), any funds you want counted for 2022 must be in your account before the end of the year. Meanwhile, the more money you put into a traditional 401(k) plan or IRA, the less income the IRS gets to tax you on -- so it pays to increase your savings rate if you can.

2. Pump more money into your HSA

Just as traditional IRA and 401(k) contributions go in tax-free and exempt a portion of your earnings from taxes, so do contributions to a health savings account (HSA). And so if you haven't maxed out your HSA for 2022, it pays to do so in the coming weeks.

That said, like IRAs, HSAs actually give you until the tax-filing deadline to finish maxing out, so you don't have quite the same fire drill as you do with a 401(k). But if you're able to finish funding your HSA this year, you'll have one less thing to worry about during the first few months of 2023.

3. Sell underperforming stocks in your brokerage account

You may have some stocks in your brokerage account that have been steadily losing money since you bought them. To be clear, stocks are down as a whole right now, and you don't necessarily want to unload every investment in your portfolio that's lost money this year. Rather, you should only look at selling a specific stock that's done poorly since you acquired it. If you do, you can use the loss you take to offset capital gains or other income.

Say you take a $5,000 loss on a stock but you also sold a stock at a profit earlier this year for a $5,000 gain. That loss will cancel your gain out so you don't owe the IRS any taxes on it. And if you don't have a gain to offset, you can use a loss to offset up to $3,000 of ordinary income. So either way, you can shrink your tax liability.

You should also know that if you can't use up your loss for tax purposes this year, you can carry some of it forward. So let's say you take a $5,000 loss, have no gains, and can only offset $3,000 of income. You can take your remaining $2,000 loss with you into 2023 and use it to help lower your tax burden then.

Paying taxes is a bummer -- there's no question about it. But if you play your cards right in the coming weeks, you can set yourself up to owe the IRS less.

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