Do you live in one of the 51 counties in California that qualify for filing and deferral of taxes until October 16, 2023? Or, maybe you’re in an affected county in one of the other five states that also drew the short straws for natural disasters in 2022 – Alabama, Arkansas, Georgia, Mississippi, or New York?
Well … you may have some really wet clothes but you MAY also get to wait all the way until October 16th to file your tax returns as a result!
Now, we may be a little biased because we live in the (soggy) state of California, but we’re not forgetting our east coast neighbors…more on that in the next section.
For example, do you live in San Diego, Orange, Riverside, San Francisco, or Los Angeles counties?
A complete list of all affected California counties is here: Alameda, Alpine, Amador, Butte, Calaveras, Colusa, Contra Costa, Del Norte, El Dorado, Fresno, Glenn, Humboldt, Inyo, Kings, Lake, Los Angeles, Madera, Marin, Mariposa, Mendocino, Merced, Mono, Monterey, Napa, Nevada, Orange, Placer, Riverside, Sacramento, San Benito, San Bernardino, San Diego, San Francisco, San Joaquin, San Luis Obispo, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, Siskiyou, Solano, Sonoma, Stanislaus, Sutter, Tehama, Trinity, Tulare, Tuolumne, Ventura, Yolo, and Yuba.
To see the list straight from the IRS Newsroom, go here, here ,and here. Plus, here’s the information on the California state taxes.
But the best part isn’t keeping the cash in your pocket until tax day. The payment extension lets you take advantage of some tax deductions and credits for last year that you may have missed out on! Deferring taxes while gaining more deductions. Wow … “Imagine That™!”
Who, What, When, & Now?
Here’s the run down. Six states struck out with awful natural disasters this year. The IRS seems to have been feeling generous the past several years and when FEMA declares and emergency, the IRS often extends the tax deadlines for the affected counties.
- 13 counties in Alabama – October 16th
- 3 counties in Arkansas – July 31st
- 51 counties in California – October 16th
- 9 counties in Georgia – October 16th
- 6 counties in Mississippi – July 31st
- 5 counties in New York – May 15th
Click your state listed above for which counties the IRS is allowing tax filing and payment extensions.
Not only does this give you some extra time to get everything filed and paid, but it also extends the time for several advantageous contributions.
What??? I can still make contributions in 2023 and deduct them on my income tax return for 2022???
Yup! (Break out the party balloons, start the happy dance, and read about some deductions you didn’t take in 2022 … that you can possibly still take advantage of in 2023!!)
Triple-play for an HSA
Here’s one that almost everyone misses! A Health Savings Account (HSA).
With baseball season just starting, this is a total “triple-play!”
- First, funds you contribute to an HSA are deductible
- Second, earnings are non-taxable
- Third, when withdrawn to pay for healthcare expenses or reimburse yourself for such, it’s tax-free. (And, if withdrawn for non-healthcare reasons at age 65 or older, you pay only income taxes but no penalty)
You might be saying to yourself, “this sounds like an IRA with benefits!” Deductible, growth is non-taxable, and distributions for qualified medical expenses are tax-free, unlike an IRA! Plus, you don’t need earned income to contribute.
So … for many Americans, you should actually set up an HSA before an IRA!
If you live in one of the affected counties, you have until May 15, 2023, July 31, 2023 or October 16, 2023 to fund this for the 2022 tax year.
The 2023 numbers are higher. But, since this is for your 2022 tax year, the limits are $3,650 if single or $7,300 for families. Plus, you (and your spouse if married) can add another $1,000 catch-up contribution if you’re age 55 or older. Remember, you need a high deductible health plan to contribute to an HSA and having one other family member on your plan (even one of the kiddos) allows you to use the family limits.
Download the 2022 Key Financial Data sheet here for last year’s contribution limits.
Self-Employed? A SEP May Be Your Best Bet
If you are self-employed, consider a SEP (simplified employee pension) IRA. Almost any business can establish a SEP-IRA for 2022, and contributions limits are much higher than an IRA.
Bear in mind that you are required to contribute the lesser of 25% of compensation for an employee (20% if you’re self-employed) or $61,000 for tax year 2022. In addition, a SEP-IRA may be opened and funded up to the tax-filing deadline, which includes extensions, so that means all the way to May 15th, July 31st, or October 16th for qualifying counties.
These plans have various rules which we can assist you with “unpacking.” This tax-deferred vehicle offers generous contribution options, and more so if you only have a few to no employees!
Planning Alert: While you can still set up a SEP-IRA for 2022, you really should then switch to a 401(k) plan in 2023, even if you are the only employee. You can set aside dollar-for-dollar contributions up to $22,500 plus an additional $7,500 if you are age 50 or older! And the business can also contribute to the retirement planning fun. Just remember, you can’t fund this only for yourself if you have other employees, but neither do you ordinarily have to cover all of them.
Don’t Forget the Tax Credits
Tax credits are SUPER sexy! They do not reduce taxable income but instead reduce your taxes owed dollar-for-dollar! That means a $1,000 tax credit reduces federal taxes by $1,000. It’s that simple.
Tax credits that may be available to you include:
- Child or Adoption Tax Credit
- Earned Income Tax Credit
- Lifetime Learning Credit
- Credit for Other Dependents
- Low-Income Housing Credit
- Premium Tax Credit through the Affordable Care Act
- American Opportunity Tax Credit
The Inflation Reduction Act of 2022 provides new ways to save. The Act creates or extends tax credits for wind, solar, zero-emission vehicles, energy savings, and other renewable sources. (Although, there is no tax relief for your hot-air neighbor, unfortunately. Oh well!)
If you made energy-efficient improvements to your home last year or purchased a zero-emission vehicle, these credits may be available to you:
- New Clean Vehicle Credit (must have been purchased in 2022)
- Energy-Efficient Home Improvement Credit
- Residential Clean Energy Credit
The list is not all-inclusive, and we encourage you to check in with your tax advisor or reach out to us if you have additional questions.
“Timing is Everything!”
If you’re like my beloved wife, she likes to get our tax returns done as early as possible! This year, you may be able to defer until May 15th, July 31st or October 16th. However, if you don’t have a big tax bill due, you might still want to get your returns in as soon as possible. Take advantage of those juicy new tax deductions we described above and get your money working for you as soon as possible.
However … if you are sending a generous check to Uncle Sam for 2022 taxes, this may be the year you wait until the 9th inning. Why not let your tax payment money earn interest/dividends as long as possible before you say your sweet goodbye’s?
And, to keep our compliance attorneys smiling sweetly upon us, please remember to run these ideas by your CPA or tax professional before leaping to implement them. They’ll be able to give you the best-tailored advice for your goals and situation.
So there you have it! There are quite likely even a few more deductions, but the above are definitely the low-hanging fruit that almost everyone can take advantage of…“Imagine That™!”
P.S. One last thing. Do you anticipate having a sale or liquidity event in 2023 of at least $500,000 or greater? If so, let’s discuss how you can reduce, defer and, in some cases, even eliminate taxes on the sale entirely.
Imagine That™! is a complimentary monthly newsletter provided by Wealth Legacy Group®, Inc. that addresses various topics of interest for high-net-worth and high-income business owners, professionals, executives and their families. Sign up to receive our monthly newsletter here.
R. J. Kelly, Wealth Legacy Group®, Inc. – April 2023
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