Time's Running Out to Claim These 3 Tax Breaks for 2022

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  • There's only a few weeks left to claim tax deductions for 2022.
  • Tax deductions reduce your taxable income for the year while tax credits reduce your tax bill.
  • All tax breaks have rules that determine who qualifies and what the maximum credit is.

You only have until Dec. 31 to complete these tasks.

The holiday season is finally upon us and that means the much-less-exciting tax season is just around the corner. If you want to owe the government as little as possible, now is the time to make some key tax-saving moves. Here are three tax breaks you may want to pursue before we ring in 2023.

1. Charitable contribution tax deduction

December is the most popular month to give to charities. Not only does this help these organizations provide vital services for those in need, but it could also earn you a tax break. The charitable contribution deduction reduces your taxable income for the year by the value of your donations, so you pay the government less.

But there are a few rules you must follow if you hope to claim this deduction. First, you need to donate to a qualifying tax-exempt organization. The IRS has a search tool that can help you verify whether your donation is tax deductible.

Typically, you can't deduct more than 50% of your adjusted gross income (AGI). Contributions to private foundations, veterans organizations, fraternal societies, and cemetery organizations are capped at 30% of your AGI.

You may donate either money or goods, but in either case, you need proof of your donation. This could be as simple as a receipt or a credit card or bank statement. If you plan to donate several hundred dollars, you will need a written acknowledgement from the charity.

Finally, you must itemize your tax deductions. This may not save you money compared to using the standard deduction. It's often best to calculate your taxes both ways and go with the option that will save you the most.

2. Saver's Tax Credit

The Saver's Tax Credit rewards low- to middle-income families who save for their retirement. This is a tax credit, which means it's a dollar-for-dollar reduction of your tax bill. If you owed the government $5,000 and qualify for a $1,000 tax credit, you'll only owe $4,000. This can have a significant effect on the size of your tax refund.

This credit is only available to adults 18 and older who aren't students and aren't claimed as dependents on anyone else's tax returns. The size of your credit depends on the size of your retirement contribution, your income, and your tax filing status. Here's a table to help you figure out how much you qualify for:

Credit Rate Married FIling Jointly Head of Household Single, Married Filing Separately, and Qualifying Widow(er)
50% of your contribution AGI of $41,000 or less AGI of $30,750 or less AGI of $20,500 or less
20% of your contribution $41,001 to $44,000 $30,751 to $33,00 $20,501 to $22,000
10% of your contribution $44,001 to $68,000 $33,001 to $51,000 $22,001 to $34,000
0% of your contribution More than $68,000 More than $51,000 More than $34,000
Source: IRS

This means that if you're a single adult with an AGI of $20,000 and you put $1,000 in a retirement account this year, you'll earn a tax credit of 50% of that amount, or $500.

The maximum contribution amount that qualifies for the credit is $2,000 for single adults and $4,000 for married couples. This means the maximum credit is $1,000 for single adults and $2,000 for married couples.

3. Tax loss harvesting

Tax loss harvesting is where you sell some investments at a loss in order to offset some of the capital gains you've earned on your other investments. This reduces the amount of capital gains taxes you owe. In addition, if you've lost a lot more than you gained, you can use your losses to write off up to $3,000 of your ordinary taxable income. And you can carry over any losses over $3,000 into the next year.

This is only an option for you if you've sold investments during the year, and investments in tax-deferred retirement accounts don't count. So you'll need to keep some money in a taxable brokerage account if you plan to do this.

You also need to watch out for the wash sale rule. This says that if you sell an investment at a loss for tax loss harvesting, you can't buy that same investment or another virtually identical investment within 30 days before or after the sale. If you break this rule, the IRS will disallow the tax deduction you claimed for tax loss harvesting.

There are a lot more tax breaks out there, and it's a good idea to look into any you think you may qualify for. Be sure you understand the rules, including income limitations and how much you can write off, so you don't run into problems with the IRS.

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