As we get closer to 2022, it is important to consider how the financial decisions you make now will affect your taxes in April. If you’re saving for retirement, itemizing deductions, or have investments outside of retirement, you need to pay attention. If you don’t get these things taken care of by the end of the year, there’s nothing you can do to lower your taxes. Below are tax moves to make before 2021 ends!
- Max Out Your Pre-Tax Retirement Savings
Try to contribute more money from each paycheck to your retirement savings before the end of the year. For 2021, you can contribute up to $19,500 to your 401(k), 403(b), or federal Thrift Savings Plan, and an additional $6,500 if you are age 50 or older. Pre-tax contributions will lower your taxable income, therefore lowering your tax liability.
- If you’re itemizing, donate!
Any donations of clothes, household items, furniture, or appliances can boost your deductions if you’re itemizing. You will base your deduction on the item’s “fair market value”. You can do this using The Salvation Army’s Donation Value Guide. You will also need a written acknowledgment from the organization you donated to if you claim a contribution of $250 or more.
- If you’re taking the standard, donate cash.
For 2021, people who take the standard deduction can deduct up to $300 of cash donations to charity. If you are filing jointly, you can deduct a total of $600. This deduction is only for cash contributions to charity, no physical donations. For donations over $250, you will need a written acknowledgement from the charity including the date of contribution, the amount, and whether or not you received goods or service in return for your donation.
- Check your tax withholding
If you had a large tax bill this year, you probably didn’t have enough money withheld from your paychecks. Between now and the end of the year, you can take the steps to change your withholdings at work, so you do not get another tax surprise. Use the IRS’s Tax Withholding Estimator to help you determine whether you should file a new Form W-4 with your employer and increase the amount of taxes withheld before the end of 2021. You’ll need your most recent pay stub and copy of your 2020 tax return to estimate your income for 2021.
- Watch capital gains distributions
Mutual funds are required to pay out any gains realized from the sale of stocks or bonds to their shareholders during the year. If you own the fund in a taxable account. You have to pay taxes on these distributions when you file your tax return, even if you choose to reinvest the realized gains. If you receive a distribution, look at your investment portfolio if you have any mutual funds, stocks, or bonds that have declined in value since purchasing. Selling the declined assets before the end of the year will offset your gains.
If you are in need of assistance to lower your tax liability before the end of 2021, Mooney Lyons is here to help. We can sit down, take a look at your financial portfolio, and do our best to lower your 2021 tax bill. Give us a call to get started!