The 2022 calendar aligned this year so that July 4th provided many of us with an extra-long holiday weekend. But the fireworks are over and, sadly, we'll never be independent of taxes.
So it's back to work this first week of July, and back to making tax moves that can at least keep a few more dollars out of Uncle Sam's clutches.
Here are five to consider this July.
1. Note the taxable driving change. If you use your vehicle for business or medical travel, that tax benefit got a bit better on July 1. On that day, the Internal Revenue Service hiked those optional standard tax-deductible mileage rates by 4 cents. The IRS decision to increase the rates, which last were adjusted in December 2021 as part of the IRS' annual review of transportation costs, was made when national average price for a gallon of gas was near $5. It hit that mark, but since has come down a bit. The new IRS rates, however, are in effect through Dec. 31.
During these last six months of 2020, business travel can be claimed at 62.5 cents per mile. Travel for medical reasons now is 22 cents per mile. That 22-cent rate also applies to allowable relocation mileage, which the Tax Cuts and Jobs Act of 2017 limited to use by military personnel.
Note these mid-year mileage rate changes in your documentation of allowable, tax-deductible driving, so it will be easy to claim on your 2022 tax return next year.
2. Don't ignore IRS notices. By now, we all know that the IRS didn't escape the COVID-19 pandemic havoc we all have (and still are to some degree) endured. Coronavirus related closures created astounding tax paperwork backlogs within the agency, and that has produced additional problems for many taxpayers.
The IRS says it is finally clearing up some of the backlog, but not all, and not nearly quickly enough. And that could lead to incorrect unpaid tax notices, known as CP14 notices. These mailings tell recipients how much the IRS thinks you owe in taxes, penalties, and interest.
During the pandemic, lots of automatically issued CP14s were incorrect because the tax return filings detailing how the taxpayers complied were in the agency's backlog. The IRS decided to suspend some notices for a while, but now as it tries to get back to sorta normal, they are going out again.
If you get notice from the IRS saying it has an issue with your taxes, be it a CP14 or other correspondence, don't ignore it. That's true whether the IRS is correct, and especially where you know the IRS is wrong.
All notices include a date by which the taxpayer must respond (or pay). Missing that deadline could lead to an escalation of IRS action, notably the start of collection activity. Susan Tompor, personal finance columnist for the Detroit Free Press, offered the following advice in a recent article:
"Naturally, the first step you want to take is make sure the bill did get paid. Do you have proof that shows the money was withdrawn from your bank account to cover the tax bill? Did the taxes get paid?
Get your documentation in order. Talk with your tax professional. Make sure you have proof to show that the tax bill was paid. …
If you disagree with the notice, the National Taxpayer Advocate recommends calling the IRS at the toll-free number on the top right corner of your notice.
Some advise that it's easier to try to get through if you call at 8 a.m. Eastern on the dot at the start of the day."
Amber Gray-Fenner, an Enrolled Agent and Forbes contributor, also notes that tax pros are seeing an increase in erroneous IRS unpaid tax notices.
3. Boost or realign your retirement funds. Summer breaks can give us an idea of how our retirement years might be spent, as long as we prepare for them. So that you can enjoy year-round relaxation when finally depart the cube farm, add now to your retirement accounts.
Inflation adjustments for the 2022 tax year have bumped up the amounts you can contribute to a workplace 401(k) plan or similar accounts at different types of employers. The IRA, both traditional and Roth, stays at $6,000. But don't forget the catch-up contribution option of an added $1,000 if you're age 50 or older.
You also might want to consider converting your traditional IRA to a Roth. That will allow you to take tax-free Roth distributions when you retire. And now could be an especially good time to make the change. Since the market has declined a bit, the lower value of your traditional IRA will mean less taxes due on the conversion to a Roth version.
If you can't afford to pay the tax on the total conversion of your traditional IRA, consider converting incrementally. You can move a small amount of your traditional IRA to a Roth now and, depending on what the market is doing later, convert more as the year end nears.
4. Donate household goods. You say you didn't get around to spring cleaning this year? Hey, I'm not a diligent housekeeper, so no judging from me. But if you're now ready for some summer decluttering, you might be able to get a tax break if you itemize. The key here is accurately claiming the fair market value of donated clothing and household goods.
5. Get ready for disastrous weather. The 2022 Atlantic/Gulf of Mexico hurricane season has, thank goodness, been relatively mild. So far. As the summer temperatures, both on land and in the country's surrounding waters, soar, so will the chances of tropical development. This welcome lull is the perfect time to get prepared in case the worst arrives.
Don't live in a hurricane prone area? Don't be complacent. Mother Nature turn into Mommy Dearest anywhere and at any time. This year's hurricane preparation post applies in all types of disasters. It's also part of the ol' blog's special Natural Disasters Resources pages that are a collection of physical and financial preparation and recovery tips.
More July tax moves: OK, done with tax moves? Cool. Now get back to your regularly scheduled summertime activities.
Or, if this month's featured five tax actions have whetted your appetite, you can check out a few more July Tax Moves to make over there in their usual place, the ol' blog's right column just below the clock counting down to the October filing extension deadline.
If the moves in this post or some of the others listed in the adjacent column apply to your personal tax situation, take advantage of them. Their potential tax savings might help pay for a longer well-deserved summer vacation.