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There are a few days left in 2022, so you still have time to do some year-end tax and financial planning. My approach is to avoid, minimize or postpone my taxes as much as possible while 100% following the rules of law. Given that, I’m hoping this newsletter is tactical, practical, and helpful.
While I love doing this kind of research, I am not a tax professional and I suggest partnering with a tax specialist/CPA., so you should discuss the content below. I use Gelt, a tax planning company that I was so impressed with after meeting the CEO, Tal Bender; I knew I had to invest a small amount in the company. Tal also helped me put together this email and offered to let any of our subscribers skip their waitlist when they schedule a call here.
I’ll also dive into everything you might want to consider before the end of the year when it comes to your miles and points. Finally, I hope you all have a wonderful holiday!
💰 Standard Deduction or Itemize
The IRS allows anyone to take an automatic standard deduction ($12,950 for a single filer and $25,900 if you’re a joint filer).
Alternatively, you can add up your qualified deductions to see if they exceed the standard deduction. Examples of qualified deductions include charitable contributions, state and local taxes (up to $10,000), mortgage interest (on the first $750k of mortgage if filing jointly), as well as some medical expenses, investment interest, gambling losses, and casualty losses.
For any year your itemized deductions exceed the standard deduction, you choose to use them instead, even if it means you switch back and forth each year. In fact, if every year it’s close, you may want to consider trying to consolidate deductions in one year by prepaying a mortgage payment or property tax bill and/or or moving up donations into the current year.
⏩ Accelerate or Defer Income
This may be harder for those that don’t own a business, but there are instances where you could push income into the next year. For example, a friend of mine recently lost their job. He will receive a severance package upon signing the final paperwork. His employer informed him that he had until the end of the year to sign, so he’s waiting to submit until the final week of December, so the first payment will be taxed in 2023.
✍️ Donate to a Charity
You can deduct any contributions you make to a non-profit, but you can also deduct clothes, electronics, or anything else you donate to places like Goodwill. For donated goods, you can get a tax donation of up to $5,000, but it comes with specific requirements. Make sure you complete a receipt and write down the amount you donated to have it on hand if you have questions.
It’s up to you to determine a valuation. You can use the Salvation Army or Goodwill valuation guides as a basis.
Donate Appreciated Assets
You can save even more when you donate appreciated assets instead of cash. Suppose you bought a stock for $100 years ago, and now it is worth $1,000 (nice! 👍). If you sold that sock, you’d owe long-term capital gains taxes on the $900 gain. In a state like California that could be as much as 33%, meaning you’d owe $300 in taxes.
Your $1,000 sale would net you $700. If you donate that $700, you get a deduction of $700. If, instead, you donate the appreciated asset (the $1,000 of stock), the charity receives $1,000 in value, and you get a $1,000 deduction. Just know the process can be a bit more complex than putting in on a credit card… unless you’re using a DAF.
Donor Advised Funds
A donor-advised fund (DAF) is a tax-advantaged account that lets you donate money, stocks, or crypto and qualify for the tax deduction in that year. Except you don't have to know exactly where you want to give the money right away. In fact, you can make your tax deductible contribution now and invest that money so it can grow tax free and let you have more impact in the future.
I manage my donor-advised fund with Daffy and you want to sign up, you can get $25 for free here. They are a partner of the podcast, but I was using their product long before we partnered and I’ll continue using them long after (which hopefully never happens, because I’m a big fan).
🧑🌾 Tax Loss Harvesting
The market hasn’t been great this year, but there are a lot of Tax Worth Knowing During a Recession. That link is to a guide that Gelt put together, but there are a few things worth sharing here.
Fortunately our tax code allows you to use capital losses to offset capital gains. And if you don’t have any capital gains, you can deduct up to $3,000 of losses each year against your income and carry forward the rest.
That means you might have an opportunity to “harvest” losses before the end of the year, but according to the wash-sale rule, in order to take a loss, you can’t repurchase the same security (or a “substantially identical” one) for 30 days. However, many ETFs and index funds have similar (but not “substantially identical”) pairings that are very highly correlated (e.g. VTI and SCHB), which would let you sell one for a loss and buy the other without the loss being disallowed by the wash-sale rule.
You can do this yourself, but you’ll want to be careful, because the wash-sale rule applies across all your accounts. Robo-advisors like Wealthfront (which I use) can automate this process, and for me have harvested over 10% of my portfolio’s value this year as losses, which I will use to offset gains inside and outside of the portfolio. I’m no longer at Wealthfront, but my investments are, and if you’d like $5,000 managed for free, you can use my link.
I also go more in-depth about this topic in the All About Investing Part 2 newsletter.
What about Crypto?
Crypto is not classified as a security, so the current wash-sale rule doesn’t apply. So if your crypto tokens are down, you can sell them to capture the loss and, if you want, repurchase them right away.
Unfortunately, if you’re like me and all your crypto is stuck on a platform like BlockFi or FTX, you can’t take the loss during bankruptcy proceedings, but if you’re confident you’ll never get anything back, you could look into taking an abandonment loss (but I’d definitely talk to an accountant first).
Also, speaking of BlockFi, many of you know they were a previous sponsor and I used their platform to store all my Crypto. Since they put a hold on customer withdrawals and filed for bankruptcy, they've left many people, myself included, with lots of their crypto tokens stuck on the platform. I'm angry about the way this was all handled and that they publicly communicated normal operations in the hours before pausing withdrawals. I still have all my crypto on the platform and hate the financial situation they've put me and many others in. I truly hope that they are able to find a way through the bankruptcy proceedings that results in everyone getting their crypto back.
📊 Investment Considerations
End of the year financial moves aren’t all about taxes. There might be a few other investment decisions to consider before the end of the year too.
Series I Savings Bonds
I-bonds are indexed to inflation and the rate locked in for six months. The current interest rate is 6.89% and it will reset in April 2023 based on the latest inflation data. Also, you can’t withdraw your money for at least a year and if you withdraw within 5 years, you’ll forego the last 3 months of interest. That said, even if in the worst case, the rate reset to 0% next year, you’d have earned an average return of 3.445% on the year, which isn’t bad for a downside.
You can invest up to $10,000 per person or entity. So you could put $10,000 in for your spouse, kids, or even your family trust. To invest you have to use the government’s Treasury Direct website, which despite looking like it was built in the 90s, does work.
Municipal Bonds
One thing I’m considering for next year is whether to add more California municipal bonds to my investment portfolio. Given rising bond rates and that muni bonds are triple tax-free from federal, state, and local income taxes, they’re now more attractive.
Exercise ISOs (Incentive Stock Options)
If you are holding unexercised ISOs, it might be possible to exercise some of them before year’s end without triggering any alternative minimum tax implications (you’ll still pay to exercise, but wouldn’t owe additional taxes). That said, I would absolutely recommend working with a tax professional to do this right.
Retirement Accounts
It’s probably too late to make any final contributions to your employer 401(k) for 2022, but you can still make contributions to IRAs and solo 401(k)s until you file your taxes next year. And if you’re not eligible to contribute directly to an IRA/Roth IRA, you could consider a backdoor Roth IRA (check out this FAQ if you’re interested). Finally, if 2022 is a low tax year, you could consider a Roth Conversion for your 401(k) or traditional IRA.
529s
If you want to save for your children’s college, you can contribute up to $16,000 per child annually in a 529 plan. Since it’s individual to individual, if a couple wanted to contribute to two kids, you could give $32,000 per person. You could also superfund five years of contributions at once. You may get a tax break for investing in some states, but you won’t at the Federal level (or in California). However, your money will grow tax-free without any penalty, as long as the funds are used for education.
I go more in-depth in the All About Investing Part 2 newsletter.
💊 Use up your FSA and max your HSA
If you don’t use your flexible spending account (FSA), you’ll lose it. Some employers allow you to rollover $570 to 2023, but typically you’ll just get a grace period to March.
Products and services like blood tests, genetic tests, new baby monitors, and thermometers are all eligible expenses. Or if you don’t need anything, you can contact a local shelter or charity, ask if there’s anything they need, and you can buy it for them.
While Health Savings Accounts (HSAs) don’t expire, they do have contribution limits each year. So if you haven’t maxed yours out ($3,650 for individuals or $7,300 for families), you have until the April tax-filing deadline to do so. While I don’t currently have an eligible healthcare plan, I love HSAs, because they’re triple-tax-advantaged. You put money in tax-free, the money grows tax-free, and you can take it out tax free.
I talk in-depth about FSA & HSAs in the Healthcare newsletter.
🏡 The Augusta Rule
If you’ve ever thought about renting your home on Airbnb while you’re traveling, you should know that it can be rented for up to 14 nights a year without needing to report the rental income. The name originated because it was a way to protect Augusta, GA, residents who rented out their homes for the Master’s golf tournament.
🌎 Grab Energy Efficiency or EV credits
Home enhancements to energy-efficiency windows, doors, insulation, roofs, heat pumps, water heaters, and furnaces qualify for up to $500 credit on your taxes or 30% solar credit. Also, if you purchase or acquire an electric vehicle (EV) assembled in the US before the end of the year, you could receive a credit of up to $7,500. I have a friend who just flew to Florida to buy an EV and take advantage of this before year-end.
💼 Optimize Business Taxes
It’s essential to think about tax optimizations if you run a business. I will highlight a few things that might be worth thinking about or discussing with your accountant.
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Electing to be taxed as an S-Corp to reduce Social Security and Medicare taxes.
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Taking a home office deduction to reduce some of your home expenses.
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Deducting 100% of business-related meals from 2022
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Hiring your children to work for your business, day-to-day, or as models for photos on your website/social media. With some income, your children would also be eligible for a Roth IRA, which could remarkably impact their financial future.
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Accelerate depreciation in one year if you buy a vehicle with a Gross Vehicle Weight Rating over 6,000 pounds and use it for business.
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If you are self-employed, you can access a lot of retirement optimizations, including the possibility of contributing more than you could as an employee.
💳 Review Expiring Points and Miles
I review all my accounts to see if they have expiring balances. If you have points related to a credit card, I wouldn’t worry because it usually just takes any activity within a year to keep points/miles from expiring.
While hotel points tend to expire more frequently than airline miles, it’s pretty easy to prevent that from happening. Many hotel programs allow free transfers between people that count as activity, so I just moved my Hilton points to my wife Amy’s account to keep them all from expiring.
Many airlines don’t have expiration dates, but for the airlines that do, you can do a few simple things:
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Use their shopping portal to make a small purchase.
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Buy a nominal amount of points.
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Donate a nominal amount.
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Redeem a few points for a donation to charity or a magazine subscription.
Any activity in your account should keep those balances active.
💍 Chasing Elite Status
If you’re chasing status (on an airline or hotel), you can always consider making a mileage or mattress run.
A mileage run is when you need an extra flight segment(s) before the end of the year to hit a certain status level. Even though I haven’t done this for a while, one year I remember flying to San Diego only to get right back on the same plane back to SFO because I was 800 miles short of getting that next tier of status.
For hotels, you could just book a cheap stay at any hotel in the program. You probably need to show up, but you don’t have to stay there the entire time (though if you do leave, I’d suggest ruffling up the sheets and putting up the do not disturb sign.
Also, if you have Delta or Marriott status, don’t forget to select your choice benefits before the end of the year.
🗓️ Use Your Annual and Monthly Credits
Many credit cards have different credits, some tied to the calendar year, some to the card member year (e.g. the 12 months following signup) and some monthly.
Calendar Year
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The Platinum Card® from American Express, American Express® Gold Card, and Hilton Honors American Express Aspire Cards have airline credits. The card will reimburse you for non-ticket airline purchases, but you must select your airline first. (There are some great threads on FlyerTalk if you want to learn about creative ways to take advantage of these credits).
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Citi Prestige® Card, Chase The Ritz-Carlton™ Credit Card, and the Bank of America® Premium Rewards® Card have annual travel credits that expire at the end of the year.
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The Platinum Card® from American Express has a few other credits expiring at the end of December: the $200 prepaid hotel credit, a $200 Dell credit, and a $50 Saks 6-month credit.
Cardmember Year
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Capital One® Venture X Rewards Credit Card and Chase Sapphire Reserve® have a $300 travel credit*. The Chase credit is straightforward to use - once it’s spent on travel, it automatically gets used. Capital One® Venture X Rewards Credit Card requires you to go into the portal and book something.
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Chase Sapphire Preferred® Card: has a $50 hotel credit when you book on Chase Travel℠.
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Hilton Honors American Express Aspire Card has a $250 resort credit at Hilton properties.
Monthly Credits
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The Platinum Card® from American Express has a $15 monthly Uber credit ($35 in December) and a $20 monthly digital entertainment credit (for things like NYTimes).
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American Express® Gold Card has two monthly $10 credits towards dining and Uber.
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Chase cards have a monthly $10 GoPuff credit and the Chase Sapphire Reserve® has a $5 monthly DoorDash credit.
*Points are not earned until after the first $300 is spent annually on purchases in the travel category. The first $300 spent goes towards the $300 Annual Travel Credit.
The content on this page is accurate as of the posting date; however, some of our partner offers may have expired.
Editor’s Note: Opinions expressed here are the author's alone, not those of any bank, credit card issuer, hotel, airline, or other entity. This content has not been reviewed, approved or otherwise endorsed by any of the entities included within the post.
