Last-Minute Tax Tips for 2021

Less than two weeks left to go before the year ends. Wow! You’ve been meaning to do some 2021 tax planning for months now. Is it too late? Believe it or not, there’s still time to implement some planning moves that can improve your tax situation for 2021. 

Here are four last-minute tax tips you can jump on and still enjoy the holidays:

  • Make HSA contributions If you are an eligible individual under the health savings account (HSA) rules for December 2021, you are treated as having been eligible for the entire year and can make a full year’s deductible contribution for 2021. The maximum contribution provides a deduction of $3,600 for individual coverage and $7,200 for family coverage. Taxpayers aged 55 or older also get an additional $1,000 catch-up amount.
  • Nail down stock losses Consider realizing losses for stock you planned to divest anyway. Those losses can offset gains from other stock or investment asset sales. Losses that exceed gains may be deducted up to $3,000 for individuals and married couples filing jointly, or up to $1,500 for married taxpayers filing separately. Any losses above the deduction limit can be carried forward to the next year to offset gains or other income.
  • “Bunch” deductible contributions and/or payments of medical expenses Many taxpayers who itemized deductions before the 2017 Jobs and Tax Cut Act no longer benefit from doing so because the standard deduction has been increased and many itemized deductions have been cut back or abolished. A bunching strategy can help you get around these new limits — by accelerating or deferring discretionary medical expenses and/or charitable contributions into the year where they will exceed the standard deduction and do some tax good.
  • Use IRAs to make charitable gifts If you are age 70½ or older, own IRAs, and are thinking of making a charitable gift, consider arranging for the gift to be made with a qualified charitable contribution, a direct transfer from the IRA trustee to the charitable organization. The transferred amount, up to $100,000, isn’t included in gross income or allowed as a deduction on your tax return. A qualified charitable contribution is a particularly good idea for retired taxpayers who don’t need all their required minimum distribution (RMD) for living expenses.

Yes, it’s late in the year for tax planning, but not entirely too late. Implementing one or more of these four last-minute tax tips will improve your tax situation for 2021. Makes the holidays even merrier, doesn’t it?

Are Those Year-end Donations Deductible?

This late in the year, you might think it’s too late to lower your 2016 tax bill. Maybe not!

 

Lower your taxes and warm your heart at the same time by making charitable contributions before year-end. Taxpayers may be able to deduct contributions to qualified charities. How do you know that a charity is qualified and your donation is deductible?

 

Answers to three common questions determine whether a donation is tax deductible:

 

Is the Charity Qualified?

 

Only donations to qualified charities with an IRS exemption designation are tax deductible. Qualified charities include humanitarian, religious, educational, scientific, and cruelty-prevention organizations. A list of qualified charities is posted in the IRS’ “Exempt Organizations Select Check” tool at http://bit.ly/1g0xhkc.

 

Who Can Take a Deduction?

 

Charitable donations are only deductible for taxpayers who itemize their deductions using IRS Schedule A. Donations must be acknowledged in writing by the charity. Donations of $250 or more must be supported by a letter from the charity stating the date and amount of the donation, reduced by the value of anything in received by the donor in return, such as a fundraising dinner.

 

What about Non-Cash Donations?

 

Donations don’t have to be financial. Items such as clothing, household goods, vehicles, stock, or real estate, can also be donated. In general, clothing and household items can only be deducted if they are in good usable condition. The deduction per items is based on the “thrift shop” value. Donated vehicles valued at more than $500 and donated property valued at over $5,000 are subject to more rules and limits.

 

Space limits the information presented here. Need more details? Consult a qualified tax professional or check out IRS Publication 526, Charitable Contributions, at http://bit.ly/1ep31yt.

 

Year-end Tax Planning for Procrastinators

For real procrastinators, the end of 2016 is a long way off. December 31 is the last day to take action on this year’s income tax liability. It’s not the last minute yet, but it’s coming up! Soon, it will be too late to act and lower that tax bill.

 

Four potential tax-saving actions to take before the year ends are:

 

  1. Maximize Retirement Savings

Most retirement savings plans must be funded by December 31. A SEP IRA or a defined benefits plan must be established before year-end and funded before the returns are filed for that tax year. Contribution limits vary by plan type. Deductible amounts depend on taxpayer circumstances. Taxpayers over 50 can make higher “catch-up” contributions.

 

More details about plans and contribution limits are on the IRS website at: http://bit.ly/1UBjXJf

 

  1. Manage Gains and Losses

Overall, financial markets performed well in 2016. The gain on sales of appreciated stocks, mutual funds, or other assets are taxable. Selling assets for a lower price than the purchase price results in a tax loss. Losses can be used to offset taxable gains. Losses in excess of gains are deductible up to $3,000 ($1,500 for married filing separately).

 

  1. Charitable Contributions

Cash and non-cash contributions made to a qualified charitable organization are deductible for taxpayers who itemize their deductions. To be deductible, contributions must be made to organizations designated as tax-exempt by the IRS. Amounts of $250 or more are required to be acknowledged in writing using language specified by the IRS.

 

More details about qualified charities and deduction rules are on the IRS website at:     http://bit.ly/2g9VDPl

 

  1. “Use or Lose” Benefits

Changes in tax laws that impact tax-preferred benefits and other items occur regularly. Those changes often impact taxpayer liability. Examples include Health Savings Accounts and Residential Energy Credits. The IRS website is a great resource to learn about the impact of tax law changes by performing a word search at www.irs.gov.

 

With only a few weeks left in 2016, it’s almost time for Real Procrastinators to take action on that income tax bill. Don’t wait – 2017 is almost here.