It’s Tax Projection Time

Tax Tip Tuesday

With the blink of an eye, summer is over and it’s the end of October.  Which lands us in the last quarter of 2021.  Financial decisions you make between now and the end of the year can have a significant effect on how much tax you have to pay next April. This is particularly true if you’re saving for retirement, itemize deductions, or hold investments outside a retirement account.

It’s tax projection time and time is running short.  Now is the time to meet with your financial, estate planning and tax advisors so that you can maximize tax savings strategies.  If you wait until January, it will be too late to cut your tax bill using most of the tips listed below.  So keep reading and take action right away!

  1. Check Your Withholding –  If you got less of a refund than expected or owed more tax than expected on your 2021 federal tax return, it may be due to not having enough tax withheld from your paycheck.  Use the IRS Withholding Calculator and follow their series of questions to help determine if you are having enough tax withheld in 2022.  Annual adjustments to tax withholding tables can cause employees to unknowingly not have enough tax withheld.  Then you get the tax surprise in April  (By the way, there’s no such thing as a good tax surprise.)   
  • Max Out Your Retirement Plan – If you can squeeze a bit more out of your paycheck, consider contributing the maximum amount to your retirement plan.  This is ideal because although pretax contributions lower your take-home pay, it will also reduce your tax bill. If your employer offers a Roth 401(k), you can make contributions that won’t lower your taxable income now but that can be withdrawn tax-free in retirement. If your employer offers both types of plans, you can direct new contributions to the Roth 401(k) rather than the pretax 401(k) at any time. In 2022, you can contribute up to $20,500 to a 401(k), 403(b) or federal Thrift Savings Plan, plus $6,500 in catch-up contributions if you’re 50 or older.
  • Cap Gains Harvesting – Consider selling investments that have fallen below your purchase price and use the resulting loss to offset capital gains in taxable accounts. Yes, this is allowable! Investments that you’ve held for a year or less are taxed as ordinary income, but investments you’ve held longer are taxed at the long-term capital gains rate, which ranges from 0% to 23.8% (including the 3.8% surtax on net investment income).

Essentially you put your short-term losses against short-term gains, and long-term losses against long-term gains. If you wind up with an overall net capital loss, you can use up to $3,000 of that loss to offset ordinary income and roll the rest over to the following year. Note that once you sell an asset at a loss, the “wash-sale” rule requires you to wait 30 days before reinvesting in it or buying a substantially identical investment.

For 2022, investors with income less than $41,675 for single filers and $83,350 for joint filers pay no capital gains tax on investments held for more than a year. In that  case, it may make sense to sell winning investments tax-free and reinvest (no need to wait 30 days), effectively resetting the scales on future gains.

  • Charitable Contributions – For tax year 2022, those who itemize their deduction can take advantage of the charitable contribution deduction.  (In 2021, those who claimed the standard deduction could claim up to $600 in donations.  That has been eliminated for 2022.)   Itemizers can make cash contributions to charities up to 60% of your adjusted gross income.  Aside from cash, you can also donate clothing, household items and furniture with the value derived from the “fair market value”, which is what it would sell for in a thrift store.  If you make a donation of $250 or more, a written acknowledgement from the charity is needed and should be kept with your tax records for that tax year.
  • Compare Paying Bills in 2022 vs 2023 – Unless your finances have changed significantly, you probably have a pretty good idea whether you’ll itemize or claim the standard deduction when you file your 2022 tax return.
    • If you plan to itemize — or you’re close to the threshold — now is a good time to prepay deductible expenses, such as mortgage payments and state taxes due in January.
    • Regardless of whether you itemize or claim the standard deduction, you can take advantage of the American Opportunity Credit by maxing out the allowable credit of $2500 per student per year in their first four years of undergraduate study.  Similarly, consider taking advantage of the Lifetime Learning Credit by prepaying a bill this year to claim up to $2000 in expenses and this is not limited to undergrad studies.
  • Claiming Child/ren on 2021 vs 2022 Tax Return – Although this is not a tax-saving strategy, it is imperative to understand the significant tax implications from 2021 to 2022 if you claim children on your tax return.  Changes made to the Child Tax Credit and the Child & Dependent Care Tax Credit specifically can make a major swing from getting a refund to potentially having to pay a chunk in taxes.  Consider this true case scenario:

A family has 3 kids with daycare expenses for 2 of the children. Everything else remains the same for 2022 as it was for 2021.  This family will go from receiving a $2,000 refund in 2021 to owing $4500 in 2022. The changes to the aforementioned tax credits are projected to result in a $6500 difference on this family’s bottom line. This is a nasty tax surprise.

You’ve read the article thus far because you are probably savvy enough to know that there is no such thing as a good tax surprise.  So if you’re not sure you understand your own tax projections and/or have concerns about the major transformations in tax rules from 2021 to 2022 and the impact on your tax return, then it’s definitely tax projection time.

My staff and I can help you get a handle on your tax projections and suggest tax-savings strategies that you can implement now.  But time is running out.  You have less than 2 months before it’s too late.  So let us help you experience a Less Taxing Life and More Prosperous Solutions.  Contact us at 301-714-2071 or at to schedule your consult today.


Berry L Baker obituary 1932-2023

Berry loved the outdoors and was an avid hunter and exceptional gardener. He blessed many people over the years with his hunting and gardening harvests.

Marlin M Bishop 1950-2023

Marlin was a Vo-Tech Teacher at Carlisle High School and Harrisburg Vo-Tech. He was a Penn State University Graduate, and an avid Penn State Football fan.

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