2022 Tax and Investment Planning

by | May 10, 2022 | Taxes

Did you review your 2021 tax return with your tax preparer?

The 2022 tax season is in the books. Now it’s time to review those 2021 tax returns and consider investment and tax plans for 2022. Do it while it’s fresh.

To complicate the end of tax season, Laura and I took the kids to Disney for Spring Break. We experienced what we were told: Easter week is the second busiest Disney week of the year. There were people everywhere. The good news is we had a Disney plan.

Your finances need a plan too. And a good financial plan integrates your goals with your taxes, your risks, and your investments. With fresh 2021 tax returns, we can start to cement a tax plan for 2022.

Start your 2022 tax plan, by benching your 2021 tax returns.

What issues should I consider when reviewing my 2021 tax return?

A great first step is figuring out headline details from your 2021 tax return and create an easy to compare summary.

Here’s what we’re looking for this year.

Figuring out your 2021 income

Start with the fun part: how much you made last year. There are a few primary ways to describe income: Adjusted Gross Income (“AGI”), Modified Adjusted Gross Income (“MAGI”), and Taxable Income. The differences are what’s deducted or added back to the income number.  On your federal returns, checkout line 11 for adjusted gross income, and line 15 for taxable income.

MAGI does not just jump off the page. It’s AGI plus certain deductions like tax exempt interest, or deducted student loan interest, or non-taxed social security benefits. MAGI is important for determining things like tax benefits or IRA contributions.

Do you know how much you paid in taxes?

We’ve said it many times before, the biggest expense for almost everyone is taxes. And federal tax payments are only part of the cost. To find your federal tax amount check line 24.

Since we have a progressive tax system, the more you make the more you pay and the higher the rate. Therefore, there is a difference between your effective tax rate and your marginal tax rate. When we say “tax bracket” we mean marginal rate. Your marginal rate is based on your taxable income. Which bracket are you?

2022 Tax Brackets

What should I consider for my 2022 tax plan?

A tax plan is not a set it and forget it aspect to financial planning.

It was the same at Disney. Disney without a plan would have been brutal. We had a plan on when to wake up in the morning and book rides. We had a daily priority list on rides to take. We had advanced booked character dinners. We studied park maps and knew when and where we were eating lunch.

Yet, it was also flexible. We had to navigate the Disney App, Genie+, and individual lightning lanes in real-time. It worked. The kids never had to suffer a wait longer than 55 minutes. There was so much stress involved, I can confidently say it was the most un-vacation I have ever been on. Kids loved it, though, and had a blast. That made it all worth it!

Here’s what we can start to plan for in your 2022 tax plans.

Please don’t take any of the following as tax, legal, or investment advice. Consult a qualified professional before taking action.

Maximize retirement plan and IRA savings

The elective deferral limit for 401(k), 403(b), and 457 plans is $20,500, plus a $6,500 catch up for those over 50. That’s up from $19,500 in 2021. Check to see how much you’ll put in your plan this year, and adjust to take advantage of tax-deferred compounding!

If your retirement plans are maxed, consider funding your Roth IRA too. The limit is 2022 is $6,000 with a $1,000 catch up for those over 50. There are income limits for eligibility, however. For single fliers with MAGI over $78,000 or married joint filers with MAGI over $214,000 (if only 1 spouse), the Roth IRA is closed to you. Call us, or schedule an appointment, to see if a backdoor Roth IRA might work for you.

Contribute to a health savings account

You can set up and fund a health savings account (HSA). This is one of the best tax-advantaged accounts out there. It’s triple tax-exempt. You receive a tax deduction for contribution, funds grow tax-deferred, and if withdrawn for qualified medical expenses it’s tax-free.

The maximum HSA contribution for those in high deductible health plans in 2022 is $3,650 for an individual or $7,300 for a family. Those age 55+ are allowed a $1,000 catch up. Over the long-term HSA’s can be great sources for retirement healthcare costs.

Bunch charitable contributions in a donor advised fund

With the standard deduction so high now, many fliers are no longer itemizing. So, if you’re charitably inclined, have plenty of excess cash, or greatly appreciated stock, consider bunching charitable contributions into one tax year. A donor advised fund can be an excellent vehicle to collect your bunched contributions, and then you can control how much is gifted each year.

Convert from a traditional IRA to a Roth IRA

OK, so this one actually costs you extra in the year of the conversion, but you could save on taxes in the future. Take a look at your income last year and check your tax bracket. If it looks like you’ll be in a much lower bracket this year compared to the future, have cash to spare for extra taxes, converting a portion of your traditional IRA to a Roth IRA might make sense. Please let us help you with this analysis. Roth conversions can help diversify the tax location of your investments and help create tax-free income streams in the future.

Swap mutual funds for exchange traded funds in taxable accounts

If you had unplanned for capital gains on your tax return this year, it could have been due to distributions from mutual funds. A mutual fund automatically distributes the realized gains it creates each year. With the current stock market volatility, you may have the opportunity to move to more tax efficient exchange traded funds. This way you can take back more control of when (and how much) realized capital gains you take each year.

Use qualified charitable distributions

Those over 70.5, with traditional IRAs can send up to $100,000 per year to qualified charities. Amounts sent directly from your IRA to charity won’t count as income in that year. So, if you’re old enough, using qualified charitable distributions is a great way to support causes you care about and receive tax benefits.

Reviewing your taxes and creating a 2022 tax plan

At the conclusion of every tax season brings the opportunity to add value by searching for ways to pay less in taxes, or create more efficient retirement income. We suggest taking a look now while returns are fresh and while you still have a long runway for planning.

Right now, we’re scheduling meetings to review the convergence of tax and investment plans. If you’d like to review ways to try to configure your retirement income plans to pay less in taxes, please let us know. We love this stuff.


Adam K. Wright, CFA, CFP®


PS – Want a copy of a very handy guide to the important number 2022. Send us an email at team@kswrightassociates.com.


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