- There's still time to trim your tax bill or boost your refund before the end of the year.
- Depending on your 2022 income, you may consider deferring a holiday bonus, "bunching" medical expenses or a partial Roth conversion, experts say.
After nearly a year of high inflation, rising interest rates and stock market volatility, it's easy to see why many Americans are cutting back on holiday gifts.
While it may not feel like a top priority, experts say trimming your 2022 tax bill may boost your finances going into the New Year.
You'll need to estimate your 2022 income, and possibly beyond, to know if these strategies make sense for you. When in doubt, it may pay off to run projections with a tax advisor.
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Here are three lesser-known tax savings ideas to consider for 2022:
1. If your income is higher in 2022, defer your bonus into 2023
If you've had a strong year and expect lower earnings in 2023, you may try to defer a holiday bonus until the new year, experts say.
"It's always exciting to reap the rewards of hard work by getting a year-end bonus," said Lisa Greene-Lewis, a CPA and tax expert with TurboTax. "But sometimes that may bump you up into another tax bracket."
However, by receiving the money in January, you may reduce 2022 income without waiting too long for the funds, assuming your company allows it, she said.
2. Prepay future medical expenses for a deduction
It's not easy to claim the medical expense deduction. For 2022, there's a tax break for unreimbursed medical expenses that exceed 7.5% of your adjusted gross income. But can only claim it if you itemize deductions.
Typically, you'll itemize if deductions — including charitable gifts, medical expenses and more — exceed the standard deduction, which is $12,950 for single filers or $25,900 for married couples filing together for 2022.
While it's difficult to plan for medical expenses, you're more likely to maximize the deduction by "bunching" expenses for two years into one, explained certified financial planner Marguerita Cheng, CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland.
For example, with multiple children in orthodontic braces, you may ask to prepay the remaining balance before year-end if you can afford it, she suggested. "The provider may also provide a discount for paying off everything sooner," said Cheng, who's also a member of CNBC's Financial Advisor Council.
Of course, you'll need to project your adjusted gross income, total itemized deductions and tally your previous 2022 medical expenses first.
3. 'Maximize your bracket' with a partial Roth conversion
With the S&P 500 Index down around 15% for 2022, you may be eyeing a Roth individual retirement account conversion, which transfers pre-tax funds to a Roth IRA for future tax-free growth. The trade-off is you'll owe upfront taxes on the converted amount.
The strategy may pay off when the market dips because you can buy more shares for the same dollar amount, and there's a chance for tax savings on the converted portion.
However, depending on your income level, you may also consider a partial conversion annually, experts say.
"The bottom line is if you are in retirement or near retirement and your income is down, then you want to consider filling up enough to maximize your bracket," said Thomas Scanlon, a CFP and CPA at Raymond James in Manchester, Connecticut.
For example, if you're already in the 24% bracket, it's possible there's still room for more income before triggering 32% on the excess amount, he said.
Scanlon said partial Roth conversions work well for retirees who are "income light and asset heavy," like someone who leaves the workforce with several years before they have to start taking required minimum distributions.