Uncover The Hidden Dollars Of Your Tax Return

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Thanksgiving week marks the start of the holiday season with resolutions and our planning for year-end finances. Taxes are one of the essential financial areas to review this time of year, and there are several strategies to make planning easier.

There is no one-size-fits-all tax planning approach, but some tips to consider may apply to your 2021 tax return. The following eleven tax tips may be just the holiday gifts you really need.

Eleven Money Saving Tips for Paying Taxes

1: Maximum Contribution to Your 401(k)

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The Internal Revenue Service (IRS) allows its 401(k) employee contribution limits. $19,500 if you are under 50 and $26,000 if you are 50 and older, Therefore, be sure to make the maximum contribution to your 401(k), and it will help you save a few dollars on taxes. And the more important the 401(k) contribution, the better prepared you are for retirement.

2: Let your credit card cover your charitable donation

Most people don’t know they can make charitable contribution by credit card payment. This option of paying by credit for charity is a gift to the organization and another opportunity for a tax deduction in the year in which you charged. Your credit card balance need not be paid off in 2021, and the amount charged could earn you some extra points for other gifts.

3: Crop Investment Loss

If you have investments in losses, now is the time to realize those losses and use them to offset gains on your taxes. This tax strategy is called Crop on your investment. By deducting investment losses, you can also offset taxable dollars for your investment gains.

4: Convert IRAs to Roth Accounts

Now is an excellent time to convert your IRA to a Roth account so that you can be in the same tax bracket as the year before. This simple conversion of your retirement savings accounts is a great way to avoid a percentage increase in taxable wages. So, now analyze your 2021 earnings to see how much it’s worth to convert to your Roth.

5: Manage Capital Gains by Selling Low Basis Stocks

People sometimes get stuck with low base stocks in highly concentrated positions. Two ways to help reduce your taxable income is to sell these shares to control for capital gains situations. One strategy is to sell some parts this year when you know what the tax rates are. Second option a. have to invest in donor advice fund (DAF) which allows one to gift less base holdings and receive a charitable deduction on the total amount. The next step is to diversify this DAF and use it as a charitable fund for the future.

6: Check Your RMDs to Determine Eligibility for Charitable Distributions

Your RMD is the required minimum distribution that you must take out of your retirement account each year. If you are of RMD age, you may qualify for charitable distributions. This tax saving strategy allows you to donate required minimum distributions to a qualified charity if the amount is $100,000 or less. Charitable distributions eliminate the taxability of these funds that they are forced to take.

7: Contribute After-Tax Dollars to Your 401(k)

If you’ve invested the maximum amount in your 401(k) contribution, you may be able to contribute a substantial amount after taxes and before the end of the year. This after-tax contribution to your 401(k) allows you to take those dollars and convert them into a Roth IRA, regardless of the earnings limit. This tax tip is a mega-backdoor strategy for saving money.

8: Your kids can double as your employees

If you are a business owner, LLC, S-Corp, or any other independent entrepreneur, you can hire your kids to do it for you. Pay your family’s employees at a significantly lower tax rate and use those funds to pay for the child’s expenses. And the first $12,550 you pay them is tax-free.

9: Hire Your Spouse to Save Taxes

As a follow-up to tax tip number eight, another option for saving on taxes is to put your spouse on the payroll (if they’re not working elsewhere). A spouse who doubles as an employee allows you to contribute another $19,500 to your 401(k) pre-tax. This financial income distribution effectively doubles the amount you can defer for retirement and taxes.

10: Maximize Your Health Savings Accounts

a health savings account (HSA) lets you contribute before-tax dollars when taking tax-free distributions. The maximum allowable amount for an HSA is $7,150, with an additional $1,000 if you are 55 or older. So, if you haven’t made this allotment yet, do it before the end of the year. Your HSA contributions are a great way to reduce your taxes while saving tax-free funds that you will undoubtedly use in the future.

11: Contribute 529 College Now

A 529 college savings plan is another good way to offset taxable income. Do your research to determine what your state allows as a deduction for contributions made to a 529 plan. In Pennsylvania, a taxpayer can contribute $15,000 per child a 529, and then those funds are deducted from your state taxes.

Tax Strategy Summary – Get Expert Help

Creative Financing is the expertise of financial advisors and certified tax planners. It is wise to seek the advice of these experts before making financial decisions on your own.

The goal of working is to make your dollars work for you in retirement. And the best way to invest your hard-earned dollars is to look for money-saving strategies that help secure wealth, health, and happiness in your future.

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