Courtesy BST & Co. CPAs, LLP.
BST & Co. CPAs, LLP, an area accounting and management consulting firms, has released a series of year-end tax tips designed to help small businesses prepare for filing season.
Dawn Doherty is a partner at BST & Co. and a certified public accountant and tax expert with more than 30 years of experience. She began her career with the Internal Revenue Service.
Doherty shared the following tax considerations for Capital Region residents:
• Get a sense of where you stand.
Many families will see smaller refunds when they file their 2022 taxes because pandemic-related tax provisions, such as the expanded child tax credit and the dependent care credit, have expired and these credits revert to pre-pandemic 2019 levels.
Although tax tables and the standard deduction have favorably changed with inflation, taxpayers may still not have enough tax withheld or otherwise paid in throughout the year to avoid a balance due at tax filing time. Check your latest pay stub for taxable wages and withholdings. If underpaid, make an estimated tax payment on or before Jan. 15.
The IRS has a tax withholding estimator on their website that can help with a simple calculation, but it may not be useful for complex situations, pension income, or for nonresident alien status filers.
If using a tax preparer or accountant, get in touch with them to notify them of transactions during the year, or changes in your circumstances.
• If you’re in business and planning to purchase assets such as vehicles or equipment, consider purchasing and placing in service before the end of 2022.
For tax year 2022, federal bonus depreciation of 100 percent of the cost is allowed for eligible tangible property used in a trade or business. That figure will be reduced to 80 percent in tax year 2023. The property must be both purchased and placed in service by year-end.
• If planning to make charitable contributions, bunch them into one tax year.
For those with itemized deductions such as mortgage interest, charitable contributions and taxes (capped at $10,000) amounting to less than the standard deduction for 2022, you may consider bunching up charitable contributions you would otherwise make across a few tax years into one year to maximize the tax benefit. Unlike prior years, there is no $300 ($600 for married filing joint) adjustment to AGI for charitable contributions, regardless of whether itemizing or using the standard deduction.
• Contribute to your retirement account(s).
If you are covered by an employer plan and have not fully maximized your 401(k), depending on your employer’s set up and cycle time you may be able to make a last-minute change and increase your contribution before your last paycheck. For those with an IRA, self-employed plan or other qualified retirement plan, you still have time to contribute and have it count toward your 2022 taxes.
• Get organized and start gathering your records now.
Whether receiving your tax documents electronically or in paper form, set up your folders now to collect the documents you’ll need to prepare your tax filing; it will make tax time much smoother. For example:
Those who received a STAR check for property taxes will likely have the check stub to document the amount received.
Place a copy of your last pay stub for the year in the folder to compare to your W-2.
Stash your stamped paid property tax bills in the folder as you receive them.
If you used a Health Savings Account (HSA), it will be helpful to have your receipts for co-pays and medical expenses that were paid from or reimbursed from your HSA account in one place to validate the distributions.
It is also prudent to have a copy of any qualified education costs in the tax folder; this will help with figuring any tax credits the taxpayers may be eligible for, as well as verifying distributions from a 529 plan.
Many information documents, such as 1099s, W-2s, and 1098s are issued in January and early February. Save these important documents in your tax folder.
You want to ensure that your tax records are complete before filing. One item that’s new in 2022 is the 1099-K. This form is issued by third-party payment platforms such as MasterCard, Visa, PayPal, Venmo and Square for payments in excess of $600 for goods and services. These forms need to be sent out by payment settlement entities by Jan. 31.