Broker Check
Have a Better Tax Season Next Year

Have a Better Tax Season Next Year

| April 25, 2022

Tax season – it’s everyone’s favorite time of year.  Whether you were expecting to owe or receive a refund, the tax filing deadline is something we all deal with.  Let’s talk about a few things to consider this time of year that can hopefully make tax filing next year a little less painful:

  1. You have plenty of time! Each year, you have the opportunity to contribute to either a traditional IRA or a Roth IRA, even if you are contributing to your company’s retirement plan.  You have until the tax filing deadline of the current year to make the previous year’s contribution.  The contribution limit for 2022 is $6,000.  You are eligible to contribute an additional $1,000 if you are 50 years or older.  If you are currently contributing to an employer-sponsored retirement plan, you will not receive an immediate tax break for contributing to either.  However, the long-term tax savings can be huge.
  2. Did you receive a large tax refund this year? Did you owe a large tax bill when you filed?  If you answered yes to either of these questions, it is probably time to revisit your withholding elections.  I encourage you to talk with your tax accountant or your financial advisor about making the appropriate changes.  These changes can be applied to withholding from both income and IRA distributions. 

When it comes to receiving large refunds, it’s important to remember that this isn’t hitting any “jackpot.”  It is the government returning your own money to you.  Essentially, you gave the IRS an interest-free loan throughout the year.  It doesn’t sound as good when you think about it from that perspective.  On the flip side, owing a significant tax bill is also not ideal for most, especially if some of that tax bill includes a late-payment penalty.  Most people, myself included, look at their finances through a monthly budget lens, which means that I don’t like the idea of having to owe a large sum at tax filing that I wasn’t expecting to owe. 

If you did receive a large refund, put it to work!  As easy as it is to spend, now is a great time to get that money invested and growing. 

  1. Does your employer offer a 401(k) Plan or something similar (403(b) Plan, SIMPLE IRA, etc.)? If so, are you contributing at least the amount needed to receive the maximum employer match?  If you are not sure, check with your HR department.  A recent study showed that approximately 17.5 million employees were leaving money on the table – a portion, I’m sure, do so unknowingly.   
  2. If you are someone that receives a 1099 tax document each year, I encourage you to talk to your tax accountant or financial advisor about how it impacts your bottom line. It is easy to adjust your withholding from other sources of income to accommodate this investment income that does not allow withholding. 

There are many other ways to strategize on your taxes, including charitable giving directly from your IRA, the timing of realizing capital gains and losses, etc.  An accountant and/or financial advisor can help you navigate those strategies and determine what applies to you.

Jorie Neech is an LPL Investment Adviser Representative at BMG Advisors. Get to know Jorie on our team page