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9 tax tips that could save you money now

Consider these ideas that could potentially reduce your tax bill this year or moving forward


AMONG THE KEY TAX TOPICS: A primary consideration for taxpayers may be understanding the effect that market volatility could have on their tax picture – and making necessary adjustments. Depending on your situation, steps could range from harvesting or carrying over any investment losses to considering potential changes to your retirement accounts. Others may be trying to figure out the tax implications of remote work, or exploring potential tax credits for clean energy under the Inflation Reduction Act of 2022. And there are a host of other tax-related steps to think about before the end of the year and into the next. Be sure to visit our Market briefs page for the latest tax law changes that could impact your finances.


The ideas below are suggested by tax accountant Vinay Navani of WilkinGuttenplan. Discuss them with your personal tax professional to see whether they might make sense for you.


1. Consider putting any losses to work for you

If you have experienced declines in some investments, a process known as tax-loss harvesting could enable you to sell underperforming assets that you were planning to sell anyway, invest the proceeds in assets you consider to be more promising, and use the losses to offset capital gains you may have realized elsewhere in your portfolio. And, if your losses for the year are greater than your gains, you can apply up to $3,000 of losses to offset your ordinary income, for federal income tax purposes. “If you expect the economy and markets to recover down the road, you could carry those losses forward and apply them in a year when your taxes may be higher,” Navani says. However, be sure not to repurchase substantially similar assets within 30 days before or after the sale to avoid triggering the wash sale rules.


Loss harvesting strategies aren’t right for every situation and should only be pursued with your long-term investment goals in mind. Selling assets solely for tax purposes could amount to “the tax tail wagging the investment dog,” Navani advises. And claiming losses comes with restrictions based on how long you’ve held the assets you sell, what you invest in as a replacement, and other factors. See this article for more details on tax loss harvesting.

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2. Keep track of where you’ve worked remotely out-of-state (or country)

“The pandemic proved that remote work works,” Navani says. If your remote-work adventure involves a different state, you’ll need to consider the state tax implications. States have widely varying definitions of “residency” that may include (a) domicile in the state, which usually focuses on an intent to remain, (b) maintaining a non-temporary presence in the state or a presence for a specific period of time, or (c) maintaining a “permanent place of abode.” Generally speaking, once you reach 183 days (more than half the year) in the state where you’re working remotely, that state may consider you a resident and tax your total income. To help avoid potential penalties, track your days spent working in different locations carefully and speak with your tax advisor about the latest rules in the states where you’re living, where you’re working remotely, and where the business is located, Navani suggests.


With international travel restrictions eased, “We’re seeing more clients who say, ‘I’ll go live in France for six months or a year, for a once-in-a-lifetime experience,’” Navani says. If you’ve been working overseas, or plan to, it’s important to be mindful of the income tax implications, he says. Your federal tax picture may be more complex. For example, under the Foreign Earned Income Exclusion (FEIE), you may exclude up to a certain amount, which is adjusted annually for inflation.1 “But the requirements are pretty strict,” he cautions. “Either your domicile has to change to that country, or you have to be there for at least 330 out of 365 days.” Certain other restrictions may also apply. Whatever your plans, be sure to speak with your tax advisor about the implications for your federal and state taxes and for the country where you’re living, Navani says.


3. Max out on your retirement plan

Think about increasing your contributions to your 401(k), IRA or other qualified retirement plan to reach the maximum contribution amount. Not only does this offer the possibility of increasing your retirement savings, but it will also potentially lower your taxable income. You can learn more information about contribution limits in our guide. If you’ll be age 50 or older at any time during the calendar year, you may be able to take advantage of “catch-up” contributions, Navani suggests. If permitted under the terms of the retirement plan, you generally have until the end of the calendar year to contribute to a 401(k) plan and until April 15 of the following year to contribute to an IRA for the previous calendar year.


4. Consider converting your traditional IRA to a Roth IRA

Under existing federal tax law, anyone can convert all or a portion of their assets in a traditional IRA to a Roth IRA. (The deadline for doing so is December 31.) Unlike with a traditional IRA, qualified distributions of converted amounts from a Roth IRA aren’t generally subject to federal income taxes, as long as:


  • At least five years have passed since the first of the year of your first Roth IRA contribution or conversion.
  • You are age 59½ or older.


However, you’re required to pay federal income taxes on the amount of your deductible contributions as well as any associated earnings when you convert from your traditional IRA to a Roth IRA. Also it is important to remember, IRA conversions will not trigger the 10% additional tax on early distributions at the time of the conversion, but the 10% additional tax may apply later on the converted amounts if the amounts converted are distributed from the Roth IRA before satisfying a special five year holding period starting in the year of the conversion.


“If the value of the investments in your traditional IRA is temporarily down, it may be a good time to consider converting,” Navani suggests. Consult with your tax advisor to see if this approach is appropriate for you.


5. Look for tax-aware investing strategies

Putting a portion of your income into investments not generally subject to federal income taxes, such as tax-free municipal bonds, may not affect your tax picture this year, but could potentially ease your tax burden when these investments start generating income.


Keep in mind that if your modified adjusted gross income is at least $200,000, you're subject to a 3.8% Net Investment Income Tax on either your net investment income or the amount your modified adjusted gross income exceeds the statutory threshold amount, whichever is less. (Your tax advisor will understand.) The threshold is $250,000 for married couples filing jointly or for qualifying widows or widowers with a child, and $125,000 for taxpayers who are married and filing separately.


6. Fund a 529 education savings plan

By putting money into a 529 education savings plan account, you may be able to give a gift to a beneficiary of any age without incurring federal gift tax. You may also be able to contribute up to five years’ worth of the annual gift tax exclusion amount per beneficiary in one year, subject to certain conditions. 529 accounts may be used to pay for qualified higher education expenses of the beneficiary – say, for instance, a child or grandchild – at an eligible educational institution. The funds in a 529 account can also be used to pay up to $10,000 of qualified primary or secondary school tuition expenses annually from all 529 accounts for a beneficiary.


Now may be a good time to review your 529 account investments, to be sure you’re still on track to meet your education goals, Navani suggests. “Especially if the money will be needed soon, you may want to adjust your contributions and investments accordingly.”


7. Cover healthcare costs efficiently

Both health savings accounts (HSAs) and health flexible spending accounts (health FSAs) could allow you to sock away tax deductible or pretax contributions to pay for certain medical expenses your insurance doesn’t cover.


But there are key differences to these accounts. Most notably, you must purchase a high-deductible health insurance plan and you cannot have disqualifying additional medical coverage, such as a general purpose health FSA, in order to take advantage of an HSA. Also, unless the FSA is a “limited purpose” FSA, you cannot contribute to both accounts.


One important benefit of HSAs is that you don't have to spend all of the money in your account each year, unlike a health FSA. Generally, the funds you contribute to a health FSA must be spent during the same plan year. However, some employers allow you to roll over as much as $570 for 2022 in health FSA funds from year to year, and others allow a grace period of up to 2½ months following the end of the year to use your unspent funds on qualified benefit expenses incurred during the grace period.


Also, you can deposit funds into an HSA up to the tax filing due date in the following year (up to the maximum dollar limit) and still receive a tax deduction. For example, you can make your 2022 contribution by April 18, 2023. Meanwhile, health FSA contributions are generally only elected during open enrollment or when you become an employee of a company.


Be sure to check your employer's rules for health FSA accounts. If you have a balance, now may be a good time to estimate and plan your health care spending for the remainder of this year. In addition, see if the account balance can be used to reimburse you for qualified medical costs you paid out-of-pocket earlier in the year. For more on HSA contribution and plan limits, see our contribution limits guide.)


8. Give to your favorite charity – or your family

If you regularly give to charities and itemize your deductions on your income tax returns, consider putting several years’ worth of gifts into a donor-advised fund (DAF) for a single year, Navani suggests. “That way, you may earn an immediate deduction and you can spread out the giving from the DAF over the next several years.”


When it comes to giving to loved ones, the lifetime federal gift and estate tax exemption amount has significantly increased since 2017. But changes could be in store, Navani notes. At the end of 2025, the current high federal gift and estate tax exemptions will decrease to approximately $6 million for individuals and $12 million for couples without Congressional action. It’s not too early to speak with your tax advisor about whether such changes could affect your estate plans, Navani says.


9. Move towards clean energy

The federal Inflation Reduction Act, signed into law in August 2022, includes nearly $400 billion for clean energy tax credits and other provisions aimed at combating climate change. “Tax increases included in the bill focus mainly on large corporations rather than individual taxpayers,” Navani notes. For individuals, the main consideration may be thousands of dollars in potential tax credits for buying new or used electric or hybrid clean vehicles, installing residential energy property, and other steps. Restrictions apply, so check with your tax advisor on which credits might be available to you, Navani suggests.


1IRS, “Foreign Earned Income Exclusion,” updated Dec. 8, 2021.


Merrill, its affiliates, and financial advisors do not provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.


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