Consider Paying 2023 Bills Now
Unless your finances have changed significantly, you probably have a pretty good idea whether you’ll itemize or claim the standard deduction when you file your 2022 tax return. If you plan to itemize — or you’re close to the threshold — now is a good time to prepay deductible expenses, such as mortgage payments and state taxes due in January. Other moves to make by New Year’s Eve:
Review your medical bills. If you have enough unreimbursed medical expenses, you may be able to deduct them. You can only deduct unreimbursed medical expenses that exceed 7.5% of your adjusted gross income. That puts this tax break out of reach for most taxpayers, but if you had extraordinarily high medical expenses this year — due to a major illness or a chronic condition, such as long Covid, for example — you may qualify.
And there’s still time to schedule appointments and procedures that will increase the amount of your deductible expenses. The list of eligible expenses includes dental and vision care, which may not be covered by your insurance. For the complete rundown, go to IRS Publication 502.
Pay property taxes early. Itemizers can deduct up to $10,000 in state and local taxes. If you haven’t maxed out for the year and your municipality allows it, pay the property tax bill due in January in December so you can deduct it from your 2022 taxes.
Prepay tuition. If you’re the parent of a college student, you may be able to lower your 2022 tax bill by prepaying the first quarter tuition bill — and you don’t need to itemize to claim this tax break. The American Opportunity Tax Credit, which you can take for students who are in their first four years of undergraduate study, is worth up to $2,500 for each qualifying student. Married couples filing jointly with modified adjusted joint income of up to $160,000 can claim the full credit, while those with a MAGI of up to $180,000 can claim a partial amount.
Likewise, if you’re planning to take a class next year to boost your own career, consider prepaying the January bill before December 31 so you can claim the Lifetime Learning Credit on your 2022 tax return. The credit is worth up to 20% of your out-of-pocket costs for tuition, fees and books, up to a maximum of $2,000. It’s not limited to undergraduate expenses, and you don’t have to be a full-time student. As with the American Opportunity Tax Credit, married couples filing jointly with MAGI of up to $160,000 can claim the full credit, while those with a MAGI of up to $180,000 can claim a partial credit.