3 Things I’m Doing in January to Keep My 2022 Tax Bill Low

Insider’s experts choose the best products and services to help make smart decisions with your money (here’s how). In some cases, we receive a commission from our partners, however, our opinions are our own. Terms apply to offers listed on this page.

• You have until the tax filing deadline to contribute to retirement accounts like a Roth IRA.
• If you’re self-employed, double check that you’re getting the most out of your deductions.
• If you have non-W-2 income, the IRS expects you to pay your tax liability by the end of January.

At the very top of my to-do list for the start of 2023, I made a note reminding me to call my accountant. Even though I have a few more months before I have to think about taxes, I wanted to see if there was anything I could do now to help reduce my 2022 tax bill.

As a solopreneur, whose income varies drastically every single month, I’ve become strategic about trying to save money throughout the year so that I can pay my tax bill all at once, without having to negotiate a payment plan with the IRS and get hit with interest. However, I hope to be able to use some of the cash I saved up in 2022 to pay this expense for other things, like investing in my business or in real estate.

That’s why I reached out to my accountant, Katie Gallo, and asked if there’s anything I can do now to help reduce my 2022 tax bill. Here are the three recommendations she gave me and how I plan to take care of them before the end of January.

1. Contribute to retirement accounts

It wasn’t until four years ago, when I turned 30, that I decided to get serious about saving for retirement. I opened a SEP IRA account and attempted to make monthly contributions, though some months I forgot or didn’t have the cash to contribute. When I shared with my accountant that I missed some contributions, she reminded me that it’s not too late to put money into my SEP IRA and count those payments as a 2022 deduction.

“Most people do not realize they have until the tax filing deadline to contribute to both traditional and Roth IRAs, as well as SEP IRAs and Keogh accounts for business owners,” said Gallo. “To qualify, the taxpayer must not be eligible to participate in a company-sponsored plan and meet certain adjusted income requirements.”

My SEP IRA contributions are tax deductible. However, Gallo gave me an important reminder about Roth IRA contributions. While these contributions will not lower your tax bill directly, the withdrawals are tax-free in retirement.

2. Max out all possible deductions

I’m in the process of gathering my business expenses to share with my accountant before tax season begins. With that in mind, she shared another way I can lower my tax bill: Make sure that I’m maxing out all possible deductions.

Gallo said that while most self-employed individuals and business owners are familiar with the concept of deducting business related expenses, they sometimes leave money on the table by not considering other areas of their lives they may be able to deduct from their income.

Some of those examples include home office or mileage deductions, and any depreciation on personal property being used for business purposes.

“Though individuals who are not self-employed are ineligible for the deductions mentioned above, there still can be opportunities to itemize expenses for deduction such as medical expenses, health insurance costs, mortgage interest, property taxes, charitable donations, and more,” said Gallo.

However, one thing to note is that these expenses must be more than the filer’s standard deduction to qualify.

3. Avoid extra fees

One thing I didn’t realize as a taxpayer was how important it is to make sure you meet your deposit requirement for the year. Gallo pointed out that the IRS expects you to pay your tax liability for the previous year by the end of January, which might not be common knowledge. However, if you are someone who receives all of your income on a W-2 and withholds properly, you are covered.

However, if you receive any additional non-taxed income, which happens a lot in my role as a solopreneur, it’s important that you make an estimated tax payment to cover earned income. If not, you could receive a penalty.

“Generally, most taxpayers will avoid this penalty if they either owe less than $1,000 in tax after subtracting their withholding and refundable credits, or if they paid withholding and estimated tax of at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is smaller,” said Gallo.

She added that if you don’t meet these thresholds, the IRS can hit you with a 0.5% late-payment penalty for each month the payment is delinquent, which is something I absolutely want to avoid.