5 Year-End Tax Deadlines You Can’t Afford to Miss

Make these moves by December 31 before it’s too late

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John Waggoner,

AARP

En español

Published December 16, 2022

The tax code has many deadlines, such as the April cutoff for filing your federal tax return. Ignore that date — typically April 15 but it’s April 18 in 2023 — and you risk facing penalties and fees from the IRS. Dec. 31 has five tax deadlines that you shouldn’t ignore either. Here’s the rundown of tax deadlines that arrive on New Year’s Eve.

Income

For most individuals, the tax year begins on Jan. 1 and ends on Dec. 31. We are currently in the 2022 tax year. If you receive income on Dec. 31, 2022, you’ll pay those taxes when you file your return in 2023. If you receive the same amount of income on Jan. 1, 2023, you’ll report that income on the return you file in 2024.

In most cases, it’s better to defer taxes when you can, particularly if you know you’ll be in a lower tax bracket next year. (Retirees typically shift into a lower income tax bracket because they have stopped working, and therefore have less income.) In addition, you’ll have the use of your money, which you would have otherwise given to Uncle Sam, for another year.

Your boss is unlikely to defer your December paycheck into January. That’s pretty difficult for people who have a regular paycheck, says Mark Luscombe, Principal Analyst at Wolters Kluwer Tax & Accounting. But it’s easier for self-employed people by postponing when you send out the December bills. And if you’re fortunate enough to get a year-end bonus, ask your employer if it can be paid out in the new year.

Capital gains and losses

If you own stock, you may well have suffered losses in 2022’s kidney stone of a stock market. You can wring some happiness out of your losses — but only if you sell your stinkers before Dec. 31.

Capital gains and losses are only taxed when you sell your shares. If you own the rare stock that’s showing a gain in 2022, you won’t pay taxes on that gain until you sell your shares. Similarly, you can’t realize losses until you push the sell button.

Capital losses can make you quite happy at tax time. You can reduce any amount of taxable gains with your capital losses. For example, if in the same year you sold stock A for a $5,000 loss and stock B for a $1,000 gain, you would owe no taxes on your $1,000 gain. If you have sold no other stocks for a profit, you can deduct up to $3,000 of losses from your income on Schedule D of your 2022 federal tax return. You can then use any remaining losses in the following tax year.

One warning: Don’t repurchase the stock or mutual fund until 30 days have passed. Otherwise, the IRS will declare your loss a “wash sale” and disallow any tax benefit. You can use the proceeds from your sale to buy other securities: If you sell your stake in an S&P 500 Index fund, for example, you can buy shares of a small-cap index fund, or Intel, for that matter.

Similarly, if you have capital gains, you can sell on Jan. 3 (the first trading day of 2023) and put off paying your taxes on that gain until 2024. Long-term capital gains, levied on the gains from securities held for more than a year, are taxed at a maximum 20 percent. Short-term gains are taxed at your maximum tax bracket

One other reason to postpone realizing gains, losses or income this year: Tax brackets and the standard deduction are adjusted for inflation, and the 2023 adjustment is one of the largest in recent memory. Income postponed till next year could fall into nontaxable status, Luscombe says, thanks to the higher standard deduction. Similarly, income realized next year could be in a lower tax bracket.

Charitable giving

You can do great good during the year by giving to charity. In some cases, you can get good back by deducting your charitable donations from your income. In any case, you must have made your donation by Dec. 31, 2022.

To get deductions for charity, you must have more deductions (of all types) greater than the standard deduction. That’s a steep hill to climb: Only about 10 percent of taxpayers are able to itemize their deduction, Luscombe says. The standard deduction for the 2022 tax year is $12,950 for single taxpayers, $25,900 for couples filing jointly and $19,400 for those filing as head of household. Qualifying widows and widowers get the same standard deduction as couples filing jointly.

Each joint filer 65 and over can increase the standard deduction by $1,400 apiece, for a total of $2,800 if both joint filers are 65-plus. Single filers age 65 and older who are not a surviving spouse can increase the standard deduction by $1,750.

Bear in mind that charitable contributions don’t have to be in cash. You can deduct the value of clothing, cars or other goods that you donate to charity. You can also deduct appreciated securities, such as stocks. (If you do so, you’ll get to deduct the value of the stock you sold and bypass capital gains taxes as well.) You might be able to take advantage of bundling your charitable deductions. Instead of making one donation on Dec. 31, 2022, for example, you could save your 2022 donation and add it to your 2023 donation. Be aware, however, that the standard deduction is tied to inflation, and the 2023 standard deduction will be larger than the 2022 standard deduction.

Unfortunately, the $600 tax exemption for couples that you may have used in 2021 has gone to that Great Tax Break in The Sky. It’s not available in 2022.

Required minimum distribution (RMD)

If you have a tax-deferred retirement plan, such as a traditional IRA, you must start taking distributions by April 1 in the year after you turn 72. For example, if your birthday was in 1950, you must take your first distribution — and pay taxes on it — by April 1, 2023. You will then have to take an RMD by Dec. 31 every year. (To make things worse, if you turned 72 in 2022 and pay your first RMD on April 1, 2023, you must pay again on Dec. 31, 2023.)

Your RMD is determined by an IRS formula that calculates how long you’re likely to live. For example, if you’re 75, the IRS Uniform Lifetime Table says you are likely to live another 24.6 years. To determine your RMD, you divide your IRA amount, let’s say $100,000, by 24.6 and you get the amount you have to withdraw — $4,065. If you’re in the 12 percent tax bracket, you’d owe $488 in federal income taxes on your withdrawal.

Note that Roth IRAs aren’t subject to RMDs since contributions were made with after-tax dollars.

Roth IRA conversions

If you have $100,000 in a traditional IRA, you’re going to pay taxes on your withdrawals sooner or later. This comes as an unpleasant shock for those who realize that their $100,000 might actually be closer to $80,000 after taxes.

The law does allow you to convert a traditional IRA to a Roth IRA and, provided you follow the rules for Roth withdrawal, you won’t pay any takes on your distributions — nor will you have to deal with those pesky RMDs. Unfortunately, when you convert your traditional IRA to a Roth IRA, you have to pay taxes at that time on the amount you convert.

Other things to consider

Your conversion might push you into a higher tax bracket. All the money you convert to a Roth is taxable in the year you make the conversion.
Once you’ve held your Roth funds for five years and have reached age 59½, all funds you withdraw from your Roth will be tax- and penalty-free whenever you withdraw them. This applies only to the earnings on your investments; you can withdraw your principal at any time, because you have already paid taxes on it. The five-year holding rule begins on the first day of the year for which you made your initial Roth IRA contribution (or converted a traditional IRA to a Roth).
The deadline for converting a Roth is different than the deadline for contributing to a Roth. You can make a contribution to a Roth for tax year 2022 up until the April 18, 2023, filing deadline. Roth conversions must be made by Dec. 31.

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John Waggoner is a contributing writer of all things financial for AARP, from budgeting and taxes to retirement planning and Social Security. Previously, he was a reporter for Kiplinger’s Personal Finance and USA Today and has written books on investing and the 2008 financial crisis. Waggoner’s USA Today investing column ran in dozens of newspapers for 25 years.