End of the Year 2021 Tax Advice

Starting your tax planning early can help save you thousands of dollars off your tax bill, so as the holiday season draws to a close, now is a great time to start getting things in order to ensure you have a smooth transition into tax season. The year 2021 brings new challenges to the table as new legislation is getting ready to be implemented. No matter your fiscal situation, being proactive can help you navigate the upcoming tax year while also saving you a bundle. Here are a few things to consider when doing your end-of-year tax planning. 

Consider Last-Minute Donations To Charity Or Family And Friends

Even if you claim the standard deductions on your taxes, which makes charitable contributions non-deductible, there are special deductions available for gifts of cash to charity. There’s also an active incentive as of 2021 that eliminates the limit of your adjusted gross income that can be cleared by a charitable deduction. This makes giving to charity a very viable option for last-minute savings on your taxes. If you have assets that you want to unburden yourself of consider using the Annual Gift Tax Exclusion, which allows you to give away 15,000 dollars to any number of individuals that you like, with no federal gift tax consequences. This keeps your old assets from growing while still in your estate, saving you money for the coming tax year. Consider donating to the Wisconsin LGBT Chamber of Commerce Foundation this year and save some money on your taxes while also showing your support.

Consider Deferring Your Income

If you want to shave off some dollars from your upcoming tax bill consider deferring some of your income into the following year. The income, a year-end bonus, for example, will be taxed the following year, freeing up your income on paper, allowing for a break from what could be a hefty tax bill. Be mindful that this option should only be considered if you believe that you will be in the same or lower tax bracket the following year, or else you could wind up an even bigger tax bill than expected.

Contribute to Retirement Plan

A tax-deferred retirement account is an essential investment and can grow vastly because the gains are untaxable. Consider pumping some of your income into your retirement account at the end of the year and before long you will be left with a considerable sum of tax-free money. This is a great way to defer some income while also investing in gains at the same time. As of 2021, you are allowed to contribute up to $19,500 to a 401(k), which is scheduled to jump to $20,500 in 2022.

Double Check Tax Withholdings

The end of the year is a great time to ensure that you have been withholding the proper amount of income taxes you will need when the bill comes. This will save you a headache as tax season ramps up and ensures that you don’t get hit with any penalty fees. The last day to pay for 2021 is January 18, 2022. 

Consider Loss Harvesting

You can reduce your income by using tax-loss harvesting, which uses the losses acquired from selling investments to offset any taxable gains for the upcoming tax year. Losses carry over year after year and can be used to completely wipe out any other income if they exceed the gains for the year. 

Check On Your Flexible Spending Accounts

If you contribute to a Flexible Spending Account at work be sure to check your remaining balance towards the end of the year and find out whether your employer allows the balance to be carried over into the next year. If the balance does not carry over be sure to repay yourself out of it for any expense allowed so you do not lose out on money put in. The money contributed is pre-tax so utilizing a flexible spending account saves you money in the long run. As of 2021 you can check and see if your employer has adopted a grace period, which would allow your balance to carry over as far as March 15, 2022.

Start a 529 Education Savings Account

While a college savings plan is most effective when started early, it can still be used even if the beneficiary is already collegebound. You can set up for a beneficiary and start paying into an account that grows tax-free and is spendable tax-free if used on educational expenses. This gives you a nice tax break and sets up a nice educational fund for your beneficiary. 

Get Your Estate in Order

Getting your estate plan in order can save you money on your taxes and provide you peace of mind going into the new year. Getting the minimum documents together, including a power of attorney, will, and living trust. Dealing with your estate can be easier to manage towards the end of the year so consider it as the holiday season comes to an end. 

These are just a few tips that you can consider this year when moving into the hectic tax season. No matter your financial situation, it’s always worth it to save money where you can. There are many ways that you can save yourself and your family money this upcoming year, be proactive and don’t get caught off guard, take control of your taxes today!