For many, December represents a time to look both backward and forward. We not only take stock of the year behind us, but also look ahead with our New Years resolutions.
If you’re anything like us, then you’ve probably got a few finance-related New Years resolutions on your list. And you’re not alone—finances make for a pretty common New Years resolution!
Whether your financial situation provides a near-constant stress, or you’re simply looking to take your savings to the next level this year, here’s a few ideas to get you started. We’re going to walk you through 10 New Years resolutions to help you reach a prosperous 2022. We’ll start with a few tax-specific resolutions then expand to some ideas for improving your financial situation in general.
We’ve grouped these New Years resolutions by how they’ll impact your life: taxes specifically, or finances generally. Since we’re focused on all things tax, we’ll start there. But as tends to be the case, most financial resolutions will relate to taxes in one way or another. We’ll make the connections as they come up.
By implementing the right New Years resolutions for your taxes, you can lower your tax bill and boost your tax refund. Moreover, you can save money throughout the year and improve your financial standing as a whole. Here are a few ideas to get you started.
Receipts offer a lot more potential for your confidence and tax savings than you may give them credit for. And chances are good that by implementing a good strategy for saving them in 2022 may help you on your taxes for the rest of your life.
Receipts can impact your tax bill in a number of ways, because sales tax is generally tax deductible. It’s similar to how you can deduct your state and local income taxes on your federal return—a deduction known as SALT. (Though often times you’ll have to choose whether to deduct income tax totals or general tax total.)
You’ve paid taxes, and this deduction allows you to get credit for the taxes you’ve already paid. But you can’t deduct the additional sales or property taxes you’ve paid unless you can keep track of them.
As the standard deduction remains the better option for a majority of filers, saving receipts won’t always impact your tax bill. However, it’s a habit worth implementing—even if just for a year—for a couple of reasons.
You can learn about your spending habits: Just like some savings-minded people switch from using cards to cash in order to reconnect with their budget, the same happens when you save your receipts. Tracking the paper trail of your spending can help you stick to a new budget in 2022.
You may end up beating the standard deduction: While the standard deduction wins out for most tax filers, most tax filers also don’t keep all their receipts. The dollars and cents add up across a year. Especially if you’ve made a major purchase like a car, you might find that hitting the standard deduction comes more quickly than you thought.
It may seem trivial when checking a box on your first day of a new job. But which box you check on the W-4 can mean the difference between a tax refund and a tax bill.
On the W-4, you’re simply telling your employer how to estimate and withhold your income, which they send to the IRS and your state. At the end of the year, the IRS estimates your tax bill. If the number is higher than the taxes your employer withheld from your paychecks, you’ll owe the IRS. If they received more money than you actually owe, they’ll send you a refund.
So, it’s important you accurately fill out your W-4. Are you single? Are you married? Do you have one kid? Maybe three? All of these basic pieces of info impact your tax liability, which credits you qualify for, and even which tax bracket you fall into.
While it’s important to get the number right when you first start a new job, typically most people run into a problem when a big life event occurs. A new child, a marriage, or a divorce can make your withholding suddenly inaccurate. Some life changes may result in a tax bill. And others may result in a big tax refund! But if you just brought in a new bundle of joy, perhaps you would rather have had that $3,000 in your paychecks rather than letting the IRS hold onto it until tax season.
As a rule of thumb, you should update your withholding each year or after a major life event. This way, you can avoid any unexpected surprises come tax time.
Do you know what tax bracket you fall into? If you don’t, you run the risk of leaving money on the table—or a tax bill in your mailbox.
For a refresher, here’s how the tax brackets play into your life. On a given year, the IRS won’t tax you at a higher tax rate for the entirety of the year. Instead, they’ll tax your income at set rates—until you cross an income threshold. Once you hit the next tax threshold, you’re taxed at the next, higher rate. And so on, up until 37% for single filers earning $523,601 (as of the 2021 tax filing year).
How does learning your tax bracket help you? Well, to start with, it allows you to make smart EOY decisions about your income. For example, if you traditionally expect a bonus around the holiday season, you may discover when it comes time to file that this bumped you up to a higher tax bracket! While this may be perfectly fine with you, you may instead opt to defer this bonus to the following year.
Freelancers may also benefit from learning their tax brackets. Because you’ll need to withhold and pay estimated taxes on a quarterly basis, understanding where your ultimate obligation lands you in terms of tax brackets can help you estimate your taxes accurately, so as to avoid any surprise tax bills come tax time.
How did your investments perform last year? You may not know the answer to this question off-hand—many don’t—but finding out may help you make smart tax decisions in the future. That’s why you should consider periodically checking in on your investment losses and gains.
Any investment, whether it’s stocks, mutual funds, bonds, or real estate, goes up or down with value over time. However, the IRS doesn’t really concern itself with the performance of these investments until the point of sale. When you sell an investment—that’s what locks in for tax purposes.
So why does it help to track your losses and gains? Well, through the process of tax loss harvesting, you can actually offset your investment gains with your losses. Or, you can simply reduce your overall income—which in certain cases might help you avoid a higher tax bracket.
As a note: While you should keep an eye on the health of your retirement investments, such as IRAs or 401(k) accounts, these accounts grow tax-deferred. So, these don’t fall under the same umbrella as the investments referred to above.
Among the most overlooked tax strategies, in 2022 we recommend looking into HSAs or FSAs to maximize your tax savings as you take care of your health. HSA and FSA stand for Health Savings Account and Flexible Spending Account, respectively, and we’ll walk you through the tax benefits of each below.
Health Savings Account (HSA)
A Health Savings Account (HSA) is a tax-advantaged savings account that you can use to pay for present or future healthcare expenses. These accounts help those who get their insurance via high-deductible health plans, with contributions made by an employee (or employer). While you may have access to a Health Savings Account through your employer, that’s not the only way to qualify for one. If you buy your insurance on your own, you may qualify—high-deductible health plans usually pair with HSAs.
While you can determine your contributions, they have an annual cap. For those with HSAs, there’s a lot of flexibility in terms of what you can do with your money. You can use for qualified medical expenses, like deductibles, prescriptions, dental or vision care, and anything not reimbursed by your health plan.
A couple of neat elements to the HSA: Unlike FSAs, your contributions are vested and anything you haven’t used at the end of the year can be carried forward to the next. You can also invest your HSA into certain mutual funds, making them savvy investment vehicles.
Flexible Spending Account (FSA)
A Flexible Spending Account (FSA) is another type of tax-advantaged spending account, which allows a person to use pre-tax dollars on qualified medical expenses. Here’s how it works: During the enrollment window toward the end of the year, you can select an amount you’d like to place in your FSA. Your total is strictly up to you, based on your expected medical needs, including medications, doctor’s appointments, etc.
Over the course of the year, your funds will be withdrawn from your paycheck, prior to your taxes. This yields a similar result to that of a Health Savings Account, by giving you the full power of each dollar you spend on medical expenses. If you put $1000 in your FSA, that means about $370 of your allotment would have gone to taxes in the first place. Not bad!
A few drawbacks with the FSA: If you don’t use your funds, you lose them. Additionally, because your FSA is generally offered through your employer, you can’t roll over your FSA to a separate account like you might with a 401(k). Due to the coronavirus pandemic, the rules have been a bit more flexible in terms of rollovers. But this point definitely should remain in your considerations.
While there are several New Years resolutions you can take on to help you directly with your taxes, there are a number of goals and habits you can employ to support your financial wellbeing year round.
You might read that the best time to start saving for retirement is in your early 20s. Well, the second best time to start saving is right now. Or if you’ve started your nest egg already, maximizing your savings can help you live a more comfortable life in your golden years.
Of course, many Americans find themselves on a tight budget, and scraping together even $100 a month might feel like a challenge. However, if you’re able to find the room or increase your monthly income in some way, dedicating some portion of it to retirement snowballs over time.
For example, if you put $10,000 into retirement account at age 25 and didn’t touch it for 40 years, you’d end up with over $200,000! Pretty staggering, huh? The sooner you start saving, the more benefit you’ll get from it. So implementing a New Years resolution of saving for retirement can yield a lot over the course of a few decades.
A Roth IRA is a good retirement standard to consider, depending on your employer, you may have other options available to you. For instance, if your employer offers 401(k) matching up to a certain percentage, you can literally double your retirement savings by contributing to your 401(k) at least up to that percentage.
Tip: An added tax benefit from most contributions is that they’re often tax deductible. So while you may see lighter paychecks, you’ll see more tax savings.
We’ve been helping our clients eliminate tax debt for twenty years. And we know first-hand the overwhelming stress that can come from debt of all kinds. If you’re considering New Years resolutions for 2022, you should consider finally tackling your debt.
Here are a few reasons why: Debt, especially debt with high interest rates, limits your future financial potential. Interest can work for you or against you. And with uncontrolled debt, it may even outpace the interest you’re earning on other investments.
Example: Credit Card Debt
Credit card debt typically carries the highest interest rates of most common debt types, which could range anywhere from 17-24% APR or higher. That kind of interest rate can fuel the debt spiral, and fast.
Let’s say you have a balance of $10,000 on a credit card, and you take out the scissors and cut the card in half. No more spending. Well, with an interest rate of just 17%, if you leave that balance untouched, you could see that total reach $11,700 after just a year!
Now, compare that to an IRA with $10,000 that earns maybe 8% in that same year. The final total sits at $10,800. After one year, you’ve lost about $900 because of unchecked debt. This is exactly why we remain so passionate about helping people resolve their tax debt. It literally eats away at your future financial potential.
A one-size-fits-all debt repayment plan doesn’t exist, because no two financial situations are exactly alike. However, by making an intentional effort to secure lower interest rates on your debt and pay it down, you can remove the anchor keeping you locked into your current financial status. And it may even help toward our next resolution.
Credit scores sure have a lot of impact on your finances, from access to lower interest rates, to access to loans in general. In fact, a lower credit score can result in thousands of dollars extra over the course of a 30-year mortgage. So, if you’re looking to buy a house or to get a new car, then you should start paying closer attention to your credit score in 2022.
You can raise your credit score through a number of tried-and-true strategies. For example, paying down your debt can help lower your overall credit utilization. And this accounts for about 30% of your FICO scorecard. Regarding your credit cards, aiming to stay under 30% (or ideally, 10%) will help raise your score, as well. Meanwhile, you can comb through your current credit report to identify and dispute any reporting errors. After all, late payments or hard inquiries you didn’t authorize all may be holding you back.
Raising your credit score doesn’t happen overnight. However, with some dedicated work in 2022, you can watch that number climb significantly higher. And it will help you to unlock lower rates and new borrowing opportunities.
How can you achieve some of these lofty New Years resolutions, like raising your credit score or paying down debt? It all starts with a budget, and that’s what you should look to create in 2022. A good budget helps you plan for how much you will spend and save each month, and keep track of your progress as you go.
To get started, you should consider tracking your expenses and income for a month. This will help you identify what your average spending in a month looks like. Do you get a coffee each morning on the way to work? How much do you spend on utilities? By tracking receipts or looking at your card transactions, you can start to make new spending decisions.
While you may be tempted to go all in, all at once—we’d recommend resisting that impulse. Start with one or two areas where you can trim back. Making coffee at home or switching from premium to unleaded at the pump will make a noticeable difference over the course of a month, and they’re simple changes. Much like diet or exercise, starting small may actually help you sustain your lifestyle changes for longer.
If you want to see your savings grow, you can either lower your expenses or raise your income. Since we’ve already discussed ways to lower your expenses, let’s talk about ways to raise your income. Negotiating a pay raise or taking on a second job can help you do just that. On the other hand, have you considered starting a business?
When we say start a business, we don’t necessarily mean opening up a brick-and-mortar storefront. In 2022, you’ll find there are dozens of ways to cheaply launch a business that might tap into a hobby, passion, or skill you already possess. For example, if your knitting creations routinely get comments of Ooh! and Ah! on your Facebook page or Instagram, you may find that your friends, family, and extended network might actually be willing to pay for a new winter hat or sweater.
Meanwhile, that overproducing apple tree in your yard could produce income in those family-favorite pies of yours. Or your woodworking projects could become more than just a weekend hobby. Perhaps you can translate your skills of piano and teaching into extra income, simply by offering piano lessons.
If you’re looking for new ways to add income in 2022, you may be surprised at how easily you can find them.
A prosperous 2022 starts with the decisions and habits you kick off right now! By setting smart New Years resolutions relating to your finances and taxes, you can kick off a year of financial health and wellness.
Hopefully, we’ve given you some good inspiration to take next year in stride as you reach new financial heights, pay down debts, and build a budget that will help you reach your life’s loftiest goals.
Of course, if your tax issues are holding you back from reaching those goals, 2022 offers a new chance for you to get things back on track. We can defend you against an IRS audit and fight back against the IRS. We can teach you what steps you need to take in the future. And we can even help you lower—and in some cases eliminate—your tax bill.
And we can help give you a sense of renewed calm that comes when you take control of your finances once and for all. So happy New Year! Let’s get to work.
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