“If the value of the investments in your traditional IRA is temporarily down, it may be a good time to consider converting,” Navani suggests. Consult with your tax advisor to see if this approach is appropriate for you.
5. Look for tax-aware investing strategies
Putting a portion of your income into investments not generally subject to federal income taxes, such as tax-free municipal bonds, may not affect your tax picture this year, but could potentially ease your tax burden when these investments start generating income.
Keep in mind that if your modified adjusted gross income is at least $200,000, you're subject to a 3.8% Net Investment Income Tax on either your net investment income or the amount your modified adjusted gross income exceeds the statutory threshold amount, whichever is less. (Your tax advisor will understand.) The threshold is $250,000 for married couples filing jointly or for qualifying widows or widowers with a child, and $125,000 for taxpayers who are married and filing separately.
6. Fund a 529 education savings plan
By putting money into a 529 education savings plan account, you may be able to give a gift to a beneficiary of any age without incurring federal gift tax. You may also be able to contribute up to five years’ worth of the annual gift tax exclusion amount per beneficiary in one year, subject to certain conditions. 529 accounts may be used to pay for qualified higher education expenses of the beneficiary – say, for instance, a child or grandchild – at an eligible educational institution. The funds in a 529 account can also be used to pay up to $10,000 of qualified primary or secondary school tuition expenses annually from all 529 accounts for a beneficiary.
Now may be a good time to review your 529 account investments, to be sure you’re still on track to meet your education goals, Navani suggests. “Especially if the money will be needed soon, you may want to adjust your contributions and investments accordingly.”
7. Cover healthcare costs efficiently
Both health savings accounts (HSAs) and health flexible spending accounts (health FSAs) could allow you to sock away tax deductible or pretax contributions to pay for certain medical expenses your insurance doesn’t cover.
But there are key differences to these accounts. Most notably, you must purchase a high-deductible health insurance plan and you cannot have disqualifying additional medical coverage, such as a general purpose health FSA, in order to take advantage of an HSA. Also, unless the FSA is a “limited purpose” FSA, you cannot contribute to both accounts.
One important benefit of HSAs is that you don't have to spend all of the money in your account each year, unlike a health FSA. Generally, the funds you contribute to a health FSA must be spent during the same plan year. However, some employers allow you to roll over as much as $570 for 2022 in health FSA funds from year to year, and others allow a grace period of up to 2½ months following the end of the year to use your unspent funds on qualified benefit expenses incurred during the grace period.
Also, you can deposit funds into an HSA up to the tax filing due date in the following year (up to the maximum dollar limit) and still receive a tax deduction. For example, you can make your 2022 contribution by April 18, 2023. Meanwhile, health FSA contributions are generally only elected during open enrollment or when you become an employee of a company.
Be sure to check your employer's rules for health FSA accounts. If you have a balance, now may be a good time to estimate and plan your health care spending for the remainder of this year. In addition, see if the account balance can be used to reimburse you for qualified medical costs you paid out-of-pocket earlier in the year. For more on HSA contribution and plan limits, see our contribution limits guide.)
8. Give to your favorite charity – or your family
If you regularly give to charities and itemize your deductions on your income tax returns, consider putting several years’ worth of gifts into a donor-advised fund (DAF) for a single year, Navani suggests. “That way, you may earn an immediate deduction and you can spread out the giving from the DAF over the next several years.”
When it comes to giving to loved ones, the lifetime federal gift and estate tax exemption amount has significantly increased since 2017. But changes could be in store, Navani notes. At the end of 2025, the current high federal gift and estate tax exemptions will decrease to approximately $6 million for individuals and $12 million for couples without Congressional action. It’s not too early to speak with your tax advisor about whether such changes could affect your estate plans, Navani says.
9. Move towards clean energy
The federal Inflation Reduction Act, signed into law in August 2022, includes nearly $400 billion for clean energy tax credits and other provisions aimed at combating climate change. “Tax increases included in the bill focus mainly on large corporations rather than individual taxpayers,” Navani notes. For individuals, the main consideration may be thousands of dollars in potential tax credits for buying new or used electric or hybrid clean vehicles, installing residential energy property, and other steps. Restrictions apply, so check with your tax advisor on which credits might be available to you, Navani suggests.