Knowledge Center

Five Top Tax Strategies for 2022

investing-my-money | Read Time: 3 minutes

By Lisa M. Borrelli, CPA | Published: February 2022


Tax planning can feel like a buzz word to so many at the end of the year. But what does it mean? Am I doing everything I “should” be? And what happens when the clock strikes twelve, ringing in the new year? Is all hope lost for efficient tax strategy until the following December?

The new year can be a time of resolutions and new commitments for many. Implementing an efficient tax strategy now can help make year-end planning conversations run smoothly.

A great strategy is to set retirement goals and begin implementing them. Here are some great options to consider.

1. Efficient Contributions: Saving for retirement can provide tax benefits today and income for tomorrow. Comprehensive tax planning looks at more than just maximizing today’s savings. In a taxpayer’s highest earning years, maximizing 401(k) contributions can reduce current income and tax. In periods where income is only anticipated to rise, Roth 401(k) and Roth IRAs make great tools to save for future retirement with tax free growth and earnings. Roth vehicles do not provide the same current year tax benefits and instead allow focus to be on future tax savings. Roth 401(k)s are very beneficial for young workers, those early in their careers and those working reduced hours nearing retirement.

2. Roth Conversions: What if you don’t anticipate a dip in income until the early years of retirement, where income is driven by Social Security and an investment portfolio but required distributions from IRAs and 401(k)s have not yet begun? Roth conversions are a great tool to smooth income, slightly increasing tax brackets today to lower tax brackets in the future.

3. Additional Retirement Contributions: If you have outlined your retirement goals and see the availability for additional contributions, there are plans that allow contributions up until tax returns are filed. Self-Employed Pension Plans (SEP), Profit Sharing Plans (pass-through entities only), and Nondeductible and Deductible IRA contributions all remain possible options for prior year contributions, where applicable, for those who missed contributing before the close of the year.

4. 529 Plans: Moving assets to young children can often result in more tax then anticipated due to Kiddie Tax, or tax for dependent children being calculated at the rates of the parents. 529 Plans allow assets to be gifted to children with growth and exempt from Federal tax if the funds are used for qualified education expenses (expanded to include K-12 in 2017). What not everyone knows is there may be state tax benefits available as well.

In the mid-Atlantic region, Pennsylvania, New Jersey (beginning 2022), Maryland, DC and Virginia allow tax benefits and/or deductions for contributions to 529 plans (at the time of this writing, Delaware does not). 529 plans are state sponsored programs, and every state has different requirements. Always speak to an advisor knowledgeable in your state of residence to ensure the plan you have invested in conforms with state requirements.

There are many reasons funding 529 Plans may not be appropriate, such as account balance limitations or the restricted use to receive tax free growth. For wealthy individuals looking for alternative investment strategies, I redirect you back to #1. Retirement contributions for children can be an efficient strategy for multiple taxpayers at once.

5. Maximize Tax-efficient Charitable Giving: When it comes to charitable giving, not all donations are created equal. Qualified Charitable Deductions or directing a required distribution to a charitable organization provides a reduction to ordinary income (up to $100,000 annually). Reducing ordinary income carries a greater impact in tax reduction then charitable giving, characterized as an itemized deduction. When taxpayers are not required to draw from an IRA, gifting appreciated stock held for greater than one year can be more beneficial than cash. This is because when appreciated stock is transferred to a charitable organization, the unrealized gain is not recognized. The donation results in both a reduction of income on the non-recognized capital gain as well as an itemized deduction for the Fair Market Value (FMV) of the stock.

Recommendations can change from one taxpayer to another and annually as facts and circumstances change. Always consult an advisor or a tax professional when making any large changes to tax planning strategy and understanding new law.

About the Author – Lisa Borrelli
Lisa Borrelli is a Wealth Planner at West Capital Management. In her role, Lisa works with clients on a variety of planning areas such as income tax and liability exposure, business planning, and trust and estate planning. Prior to joining West Capital management, Lisa was a Senior Tax Associate at BDO USA, LLP in the Private Client Services department; providing clients with cash flow and tax return analysis in addition to tax return preparation focusing on high net worth individuals and closely held businesses. Lisa is currently pursuing her Masters in Taxation (M.T.) at Villanova University and earned her B.S. in Accounting from the Haub School of Business at Saint Joseph’s University.

This communication is provided by West Capital Management (“WCM” or the “Firm”) for informational purposes only. Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. No portion of this commentary is to be construed as a solicitation to buy or sell a security or the provision of personalized investment, tax or legal advice. Certain information contained in this report is derived from sources that WCM believes to be reliable; however, the Firm does not guarantee the accuracy or timeliness of such information and assumes no liability for any resulting damages. Any reference to a market index is included for illustrative purposes only, as it is not possible to directly invest in an index. Indices are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs.


The Simple Four Step Guide to Estate Planning

Putting together an estate plan to ensure your family is well cared for in the future is important for everyone. Regardless of your level of wealth, taking stock of what you have and creating a plan to provide guidance to family and friends about your choices is imperative. Without it, a court may need to step in to authorize certain decisions on your behalf and state law to determine who will inherit your assets. Everyone should take these four steps to ensure they have a plan in place.

Read More

Stay On Track by Setting Small, Short-Term Financial Goals

It’s been hard to ignore some of the massive returns seen in the financial markets over the past few years. Be it cryptocurrencies or meme stocks, the idea that you can double, triple, or quadruple your money in a matter of days or weeks can be extremely tempting, but is akin to gambling. Behavioral finance teaches us that we as investors are not always rational. We can be overconfident or react without thinking things through, which can cause us to lose sight of our financial goals. Long-term goals, like retirement savings, are built on your money decisions made today. The below three short-term goals are no different, but keep in mind that your risk appetite and return expectations should be tempered.

Read More

Financial Resolutions – Seven Simple Strategies to Improve Your Finances in 2022

With the year ending, many of us begin thinking about what we want to accomplish next year and in the long term. For some it is committing to a healthier diet, getting more exercise, spending more time with family, going on more adventures or saving more in the future.

Read More

Market Minute

The markets and the economy are ever-changing, making it hard to keep up sometimes. Let WSFS help you make sense of it all. Tune in to our Market Minute update from Andrew N. Davis, CFA®, Director of Research at West Capital Management, a subsidiary of WSFS Financial Corporation.

Read More

What is a Private Banker and Do I Need One?

Having a go-to person in life is always a plus. In this fast-paced world we live in, where interactions happen via online chats or through automated voice recordings, it is still important to forge personal relationships. While many banks offer personal service, there are also others who act as dedicated, hands on concierge bankers. If you’ve never worked with a private banker, you might not be aware of what they can offer. Here is what you need to know about private bankers and the benefits of their services.

Read More