5 Last-Minute Deductions to Take for Your 2022 Taxes
Doing this before the year is up could help you get more money on your next return.
The Internal Revenue Service (IRS) likely won't start accepting 2022 tax returns until late January, but the agency is already delivering some less-than-welcome news to taxpayers: Many of us will "likely receive a significantly smaller refund" next year compared to this year due to a drop in tax credit levels and stimulus checks. But if you were counting on receiving a similar amount of money back for your 2022 taxes, there's still time to take action with last-minute deductions before the year is up.
Deductions "reduce the amount of your income before you calculate the tax you owe," according to the IRS. As a result, taxpayers will have to pay "less taxes on their income, and it may even lead to a tax refund," Adam Pippington, an experienced financial expert and the CFO at Freedom Dividend, tells Best Life. In order for these deductions to count toward your next tax return, however, you'll have to take them by Dec. 31. Read on to find out which five last-minute deductions tax experts recommend.
READ THIS NEXT: This Deduction Could Get You Flagged for an Audit by the IRS, Experts Warn.
Help yourself with your taxes by helping others. Luke Williams, a financial expert with Expert Insurance Reviews, advises taxpayers to make more charitable donations as the year is ending because they are tax-deductible. "Cleaning out your closets, garages, and old storage spaces and donating things you don't use anymore is a great way to give to those in need while reducing your tax liability and potentially increasing your return," he explains.
But there are some things to remember with this last-minute deduction: "Donate only to a qualified charity and keep track of everything you donate," Williams says.
According to the IRS, "you must maintain a record of your contribution" for any monetary gifts, no matter the amount. This includes keeping "a bank record or a written communication from the qualified organization containing the name of the organization, the amount, and the date of the contribution," the agency says.
You may want to put more money toward your retirement now in order to help you come tax time. "The smartest way to take advantage of any last minute tax deductions is by contributing as much as you can to your retirement accounts," says Jake Hill, a financial expert and CEO of DebtHammer. You will want to add to your traditional individual retirement account (IRA), "as these contributions are tax-deductible," Hill explains.
On the other hand, "Roth IRA contributions aren't deductible," according to the IRS. The agency also warns that the amount you are allowed to deduct for a transitional IRA could be capped depending on your retirement plan.
"Your deduction may be limited if you (or your spouse, if you are married) are covered by a retirement plan at work and your income exceeds certain levels," the IRS explains. But if you and your spouse are not covered by a work-based retirement plan, "your deduction is allowed in full."
READ THIS NEXT: The IRS Warns You Could Get Fined for Forgetting This on Your Taxes.
Student loan payments
Another useful last-minute deduction you can take involves something most of us have in common: education debt. "Student loan interest may also be deducted," says Tommy Gallagher, a former investment banker and the founder of Top Mobile Banks. "This is particularly helpful for those with higher-than-average student loan debt."
You are allowed to deduct up to $2,500 in student loan interest payments, according to Leona Bass, a tax expert and the marketing director at Loan Advisor. "So if you choose to itemize and have student loan debt, remember to include this," Bass advises.
Are you on a high deductible health plan? If so, you should "contribute to Health Savings Account," also known as an HSA, according to Taylor Jesse, a certified public accountant and financial planner. "An HSA is kind of like an IRA, except it's meant to pay for health care expenses not retirement," she explains. In order words, contributions to this type of account are also tax-deductible.
"You can contribute $3,650 to an HSA if you're the only one on the health insurance plan (or $7,300 for multiple people)," Jesse says. "You can also save an extra $1,000 if you're over 50."
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Small business expenses
Your side hustle is likely something you "might not have considered" in terms of tax deductions, according to Bass. But if you've managed to monetize your hobby over the past year, "you can deduct expenses related to it from your taxable income," she says.
"Assume you enjoy knitting and have begun selling your knitted goods online," Bass explains. "You may be able to deduct related expenses from your income, such as knitting needles, patterns, and yarn."
You can also utilize small business expense deductions if have traveled in any way for your work. Steve Rose, a financial expert and the vice president at MoneyTransfers, reminds taxpayers to take into account any costs associated with ATM use when traveling. "If you are stuck at the airport or in a distant place and have to use an out-of-network ATM, the fee you incur may be reimbursed," he notes.
According to Rose, this fee will need to have come out of your business account, however—which should be separate from your personal financial accounts. "You'll also need proof that the charge was made while you were doing legitimate business-related things, like going to a conference or meeting with a client," he says.
Best Life offers the most up-to-date financial information from top experts and the latest news and research, but our content is not meant to be a substitute for professional guidance. When it comes to the money you're spending, saving, or investing, always consult your financial advisor directly.