With the tip of 2022 quick approaching, year-end monetary planning conversations with purchasers are possible already beginning to take form. It’s been a 12 months of attention-grabbing developments—from pandemic-related aid that has come and gone to the emergence of latest packages round pupil mortgage debt—and purchasers shall be trying to you to assist navigate these adjustments. Having this guidelines in your again pocket could make your planning conversations with purchasers extra productive and assist them keep on observe.
1. Improve Retirement Contributions to the Max
Office accounts. Encourage purchasers to contemplate maximizing contributions to their office plans and to take full benefit of any employer match profit. For 2022, the utmost worker deferral for 401(okay), 403(b), and 457 accounts is $20,500, and people ages 50 and older can defer an extra catch-up contribution of $6,500. For SIMPLE IRAs, the deferral stays $14,000 and the catch-up is $3,000.
Conventional IRAs. Maxing out contributions to a standard IRA is another choice. For 2022, the contribution restrict is $6,000 or 100% of earned revenue, whichever is much less, with a $1,000 catch-up for purchasers ages 50 and older. Modified adjusted gross revenue (MAGI) limits for contributions to conventional and Roth IRAs elevated in 2022, so be sure you evaluate MAGI eligibility thresholds.
2. Spend FSA {Dollars} and Contribute to HSAs
If permitted beneath an employer’s plan, a person can carry over unused well being versatile spending account (FSA) quantities, with a most carryover quantity of $570. Though the rollover choice applies to the employer’s plan 12 months somewhat than the calendar 12 months, this year-end evaluation is an efficient reminder to verify your purchasers are on observe. As well as, purchasers with dependent care FSAs can save as a lot as $5,000 (household restrict) or $2,500 (married submitting individually) in 2022.
Now can also be a good time to debate most well being financial savings account (HSA) contributions with purchasers who’ve high-deductible well being plans (HDHPs). Though this could be a pretty complicated planning space, normally, right here’s how HSA limits work: In 2022, the utmost contribution for a person HSA is $3,650, and the utmost for a household HDHP is $7,300.
Plus, purchasers ages 55 and older can contribute an extra $1,000. Don’t neglect to debate prorated vs. “final month rule” contributions for purchasers who had an HDHP for a part of 2022.
3. Assess Marginal and Capital Beneficial properties Tax Issues
Shoppers on the edge of a tax bracket might be able to put themselves within the decrease one by deferring some revenue to 2023. Listed here are just a few thresholds to bear in mind:
37 % marginal tax charge: Taxable incomes exceeding $539,900 (particular person), $647,850 (married submitting collectively), $539,900 (head of family), and $323,925 (married submitting individually)
20 % capital positive factors tax charge: Taxable incomes exceeding $459,750 (particular person), $517,200 (married submitting collectively), $488,500 (head of family), and $258,600 (married submitting individually)
Extra Medicare tax: For purchasers with W-2 or self-employed revenue above sure MAGI thresholds, whole Medicare taxes shall be 2.35 % and three.8 %, respectively
3.8 % surtax on funding revenue: The lesser of internet funding revenue or the surplus of MAGI higher than $200,000 (particular person), $250,000 (married submitting collectively), $200,000 (head of family), and $125,000 (married submitting individually)
4. Evaluate and Rebalance Portfolios
12 months-end monetary planning ought to embrace a evaluate of capital positive factors and losses to your purchasers and an evaluation of whether or not it’s time to rebalance shopper portfolios. This course of could reveal tax planning alternatives, akin to harvesting losses to offset capital positive factors.
5. Faucet into the Tax Advantages of Charitable Giving
Charitable contributions donated on to a certified charity or a donor-advised fund may also help obtain a federal tax deduction. Bear in mind, nonetheless, that this technique will solely be helpful if itemizing deductions. So, it’s worthwhile for purchasers to debate with their tax professionals if their charitable contributions, along with different deductions, will surpass their customary deduction.
Deductions on contributions to donor-advised funds are capped at 60 % of AGI for money and 30 % of AGI for long-term appreciated securities.
Certified charitable distribution (QCD) guidelines haven’t modified, so purchasers older than 70½ could make a QCD of as much as $100,000 on to a charity; married joint filers could exclude as much as $100,000 donated from every partner’s IRA. Additional, a QCD may be helpful from a tax perspective, because it reduces taxable revenue whereas additionally satisfying the RMD requirement.
6. Put together a Technique for Inventory Choices
Different minimal tax (AMT) exemption limits elevated in 2022 to $75,900 for single tax filers and $118,100 for married joint filers. Relying on AMT projections, purchasers could wish to wait till January 2023 to train incentive inventory choices.
7. Plan for Estimated Taxes and RMDs
A retiree’s first RMD should be accomplished by April 1 of the 12 months after they flip 72. After the primary 12 months, they have to fulfill their annual RMD distribution by December 31 for each ensuing 12 months. If a taxpayer chooses to delay the primary RMD till April 1, they might want to take one other RMD earlier than year-end (i.e., basically two RMDs in that first 12 months, in the event that they delay).
Shoppers who could also be topic to an estimated tax penalty can request that employers (through Kind W-4) modify their withholding to cowl shortfalls. The IRS tax withholding estimator could be a invaluable useful resource right here. They might additionally discover utilizing Kind 1040-ES to make their estimated quarterly funds for revenue that’s not topic to withholding.
8. Get Able to Repay Pupil Loans
Pupil mortgage funds are set to restart on the graduation of 2023. Underneath the Biden administration’s one-time pupil mortgage debt aid plan, funds could be decreased to five % of discretionary revenue for many undergraduate loans. Extra info on this plan shall be introduced within the coming days and weeks. To get the most recent, your purchasers can seek the advice of this beneficial truth sheet and join updates on the U.S. Division of Training web site.
9. Consider Property Plans
It’s all the time a good suggestion to evaluate property plans as a part of year-end monetary planning. Relying on a shopper’s internet value, establishing a faulty grantor belief, spousal lifetime entry belief, or irrevocable life insurance coverage belief could also be an efficient technique to scale back property tax publicity.
Whilst you evaluate a shopper’s property plan, be sure you replace beneficiary designations and evaluate trustee appointments, energy of legal professional provisions, and well being care directives.
Be a Trusted Useful resource and Information
Though this year-end monetary planning guidelines covers quite a lot of floor, it’s meant to function a springboard to your planning conversations with purchasers.
You’ll have an amazing start line to speak via high-level points and deadlines which might be most related to them and have the chance to succeed in out proactively—and provide to collaborate with—CPAs, attorneys, and different professionals they work with. These planning conversations are simply one of many many alternatives you need to display the worth you ship and deepen your shopper relationships.
In fact, it’s possible that many consumers can have extra sophisticated points to contemplate. Find out how having a crew of specialists at your fingertips may very well be a sport changer to your follow and your purchasers.
Commonwealth Monetary Community® doesn’t present authorized or tax recommendation. It’s best to seek the advice of a authorized or tax skilled relating to your particular person state of affairs. Third-party hyperlinks are offered to you as a courtesy and are for informational functions solely. We make no illustration as to the completeness or accuracy of knowledge offered at these web sites.
Editor’s Word: This put up was initially printed in October 2021, however we’ve up to date it to deliver you extra related and well timed info.