Posted on: 16 December 2021Share
The traditional deadline to file your taxes for the previous year may be April 15th, but if you want to lower your taxes, there are moves that you are going to need to make before the end of 2021. These tax-planning moves will help you ensure that you control your taxes and that you keep your taxable income as low as possible.
Make Those Charitable Donations
If you regularly donate to charity, you will want to ensure that you get all your charitable donations in by the end of the year so you can enjoy those tax benefits for your 2021 taxes. If you don't typically itemize your deductions, you can still claim a deduction for up to $300 for cash donations in 2021. This allows you to donate to charities and enjoy a tax benefit even if you are not a big spender and typically take the standard deduction.
If you want to go big with your donations, you can deduct up to 100% of your adjusted gross income (AGI). This only counts for cash contributions, not donations of goods or services. You will have to use the right form to enjoy the 100% limit; your tax professional can assist you with this.
Contribute to Your Retirement Funds
Next, you will want to check and see what you have contributed to your retirement plans. If you have extra cash on hand, it is smart to put that money into your retirement accounts if you have not maxed them out yet this year.
If you have a Roth or traditional IRA, you can contribute up to $6,000 to that fund. You actually have until the tax filing deadline to move your money into an IRA account; however, the sooner you max it out, the sooner you can start contributing to IRA for the 2022 tax year. Keep in mind that if you are over 50, you can contribute up to $7,000 to your IRA.
You may also want to add more money to your 401(k) plan so that you max out what you contribute to that. 401(k) contributions are pre-tax contributions, which means they can bring down your taxable income.
Check Your Withholdings
Third, you will want to check and see if you are withholding enough from your taxes. Keep in mind that both unemployment and self-employment income are taxable. To know if you have been withholding sufficient amounts, you can use the IRS's own tax withholding calculator.
This will give you an idea of if you may end up owning taxes for 2021 when you file or get money back. If it looks like you will owe taxes, you can start saving so that you have the money to pay your taxes by the filing deadline. If you are getting a big refund, you may want to adjust your withholding for 2022, so you are taking home more of that money instead of waiting to get it via a refund.
As the end of the year approaches, make sure you have gotten in your charitable cash contributions. You will also want to ensure that you have maxed out your retirement contributions. Be sure to check and see if you withheld too much or too little so you can adjust your withholdings in 2022 and save up if you have a tax bill coming your way in April. For more advice, talk to a tax preparation service.