Here are 6 Tips You Can Use To Lower Your Taxes in 2021.
Leverage pre-tax savings. Take advantage of opportunities to set aside income on a pre-tax basis.
- Participation in your employer’s retirement savings program.
- Fully funding Health Savings Accounts (HSA) and “Flex Benefits” accounts that allow using pre-tax earnings to pay for childcare and out-of-pocket medical costs. Remember, unlike HSAs, it is important to use up any funds in your Flex health care accounts and dependent care accounts before the end of the plan year as any unused funds will be forfeited.
- Take full advantage of employee benefits like pre-tax childcare, parking reimbursements, and any tuition reimbursement programs.
- Paying any health care costs with pre-tax dollars.
- Max out your 2020 contributions to your IRA or 401K plans, etc.
Defer Income and Accelerate Deductions (or vice versa!).
When possible, think about whether it is better to reduce taxable income this year or next year. By understanding which tax year will be more advantageous to you, you can defer income into a subsequent tax year: and accelerate deductible expenses into the current tax year. Alternately, you may believe tax rates will be higher next year. If this is the case, you will want to move as much income into the current year and defer expenses. Here are some ideas if your strategy is to minimize taxable income this year:
- Make an extra house payment.
- Make additional charitable contributions (that you would make anyway) *
- Make next year’s church donations this year. *
- Make different trips to donate non-cash items before January 1st*
- Review your investments to book gains and/or losses
*Note: With higher standard deductions, many of you will not be itemizing deductions each year. If this is you, consider bundling two or three years of deductions into one year. This is especially beneficial with charitable contributions. However, in 2021, non-itemizers can deduct up to$300.00 in charitable donations.
Review your gains and losses.
- Each year up to $3,000 in investment losses can be used to offset ordinary income. This is done after using the tax code’s netting rules. Furthermore, any donation of appreciated stock can avoid paying tax on the donation’s capital gains. Make full use of this knowledge to make tax-efficient moves with any investment gains and losses.
Maximize tax-exempt and tax-deferred Investments.
- The higher your tax bracket, the more tax savings you’ll realize with tax-exempt and tax-deferred contributions such as employer-sponsored 401(k)s, IRA’s, tax-free municipal bonds, and Section 529 College Savings Plans.
Make the tax brackets work for you.
- The U.S. ordinary income tax has seven different tax rates with a maximum rate of 37%. The higher rates are like stairs – you go to the next highest rate when you pass a specific dollar amount. Knowing this, make full use of a lower rate until you step up to the next level. Those that are taking money out of retirement accounts should make full use of this idea.
Avoid Penalties:
- As our tax system slowly migrates from a voluntary compliance system to a punitive one, the IRS relies heavily upon penalties. For example, the minimum failure to file penalty has increased from $100 in 2009 to $435 in 2020. To avoid costly penalties and interest charges, get your tax records in order now. When tax season begins, you will have t your papers in order.
For more tax saving ideas, click here, https://sfstaxacct.com/2019/11/tax-planning-tips-from-sfs-tax/
