Here are some things for Fortune 500 employees and retirees to consider as they weigh potential tax moves between now and the end of the year.
1. Defer income to next year
Fortune 500 employees must consider opportunities to defer income to 2023, particularly if you think you may be in a lower tax bracket then. For example, you may be able to defer a year-end bonus or delay the collection of business debts, rent, and payments for services. As a Fortune 500 employee, doing so may enable you to postpone payment of tax on the income until next year.
2. Accelerate deductions
Fortune 500 employees and retirees should also look for opportunities to accelerate deductions into the current tax year. If you itemize deductions, making payments for deductible expenses such as medical expenses, qualifying interest, and state taxes before the end of the year (instead of paying them in early 2023) could make a difference on your 2022 return.
3. Make deductible charitable contributions
As a Fortune 500 employee, if you itemize deductions on your federal income tax return, you can generally deduct charitable contributions, but the deduction is limited to 50% (currently increased to 60% for cash contributions to public charities), 30%, or 20% of your adjusted gross income (AGI), depending on the type of property you give and the type of organization to which you contribute. (Excess amounts can be carried over for up to five years.)
As a Fortune 500 employee, if it looks as though you will owe federal income tax for the year, consider increasing your withholding on Form W-4 for the remainder of the year to cover the shortfall. Time may be limited for Fortune 500 employees to request a Form W-4 change and for their employers from Fortune 500 to implement it in time for 2022. The biggest advantage in doing so is that withholding is considered as having been paid evenly throughout the year instead of when the dollars are actually taken from your paycheck. This strategy can be implemented by Fortune 500 employees to make up for low or missing quarterly estimated tax payments.
5. Save more for retirement
Deductible contributions to a traditional IRA and pre-tax contributions to a Fortune 500-sponsored retirement plan such as a 401(k) can reduce your 2022 taxable income. As a fortune 500 employee, if you haven't already contributed up to the maximum amount allowed, consider doing so. For 2022, Fortune 500 employees can contribute up to $20,500 to a 401(k) plan ($27,000 if you're age 50 or older) and up to $6,000 to traditional and Roth IRAs combined ($7,000 if you're age 50 or older).* The window to make 2022 contributions to a Fortune 500-sponsored plan generally closes at the end of the year, while you have until April 18, 2023, to make 2022 IRA contributions.
*Roth contributions are not deductible, but Roth-qualified distributions are not taxable.
6. Take the required minimum distributions
If you are a Fortune 500 employee age 72 or older, you generally must take required minimum distributions (RMDs) from traditional IRAs and Fortune 500-sponsored retirement plans (special rules apply if you're still working and participating in Fortune 500's retirement plan). You have to make the withdrawals by the date required — the end of the year for most individuals. The penalty for failing to do so is substantial: 50% of the amount that wasn't distributed on time. As a fortune 500 employee, making these distributions in a timely manner is essential as to avoid the late penalty.
7. Weigh year-end investment moves
Fortune 500 employees and retirees shouldn't let tax considerations drive investment decisions. However, it's worth considering the tax implications of any year-end investment moves that you make. For example, if you have realized net capital gains from selling securities at a profit, you might avoid being taxed on some or all of those gains by selling losing positions. As a Fortune 500 employee, any losses over and above the number of your gains can be used to offset up to $3,000 of ordinary income ($1,500 if your filing status is married filing separately) or carried forward to reduce your taxes in future years.
This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.
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