The 2021 calendar year might be over, but that doesn’t necessarily mean that you’re out of luck if you want to make any last-minute tax moves before you file your 2021 return.
While your options may be somewhat limited after December 31st has passed, below are five options to think about as you get ready to file your 2021 taxes.
- Traditional IRA
You may still be able to make an IRA contribution for 2021, even as late as April 18th. In order to receive a deduction for your contribution, you’ll want to review your 2021 AGI (Adjusted Gross Income), ideally with a professional. The income limit phase-out range starts at $66,000 for individuals and $105,000 for married joint filers, with exceptions to these limits being available if you do not have access to a 401K or other retirement plan through work.
Another scenario where an IRA contribution can be beneficial is for a recent retiree. Some retirees will receive earned income from their previous employer in the calendar year following their retirement in the form of a prorated bonus or otherwise. This earned income allows the retiree to make an IRA contribution and take the deduction. If this applies to you, be sure to contact your advisor to discuss your options.
If you decide to make an IRA contribution, the maximum amount for 2021 is $6,000 per individual, or $7,000 for individuals age 50 and older.
- SEP IRA & Small Business Plans
If you are self-employed you may be able to make a last-minute contribution to a retirement plan as well. The most common type of self-employed retirement plan is a SEP IRA, but depending on your tax situation, a Solo 401K, Defined Benefit plan, or other types of retirement plan may be beneficial for you.
The contribution limit for a SEP IRA in 2021 is $58,000, with no income limitations being applied. That said, the amount you will be able to contribute will be dictated by your self-employment income for the year, so work with your advisor and your tax professional to make sure the contributions are done properly to ensure you are maximizing the tax savings.
- Roth IRA
If you are interested in a different type of tax-advantaged retirement savings vehicle, a Roth IRA may better suit your needs. While it does not provide an immediate tax deduction, it does allow you to invest funds in a tax-advantaged manner for the long term. If you meet the requirements at distribution time, all withdrawals will be tax-free.
There are income limits for who can contribute to a Roth IRA. AGI limits start at $125,000 for individuals and $198,000 for joint filers in 2021.
Contribution limits for a Roth IRA are the same as a Traditional IRA – $6,000 per individual, or $7,000 for individuals age 50 and over. This contribution limit is an aggregate for both IRA account types, so between a traditional IRA and a Roth IRA you cannot contribute more than the annual limit in total.
- Charitable Contributions & Deductions from 2021
2021 is the last year (pending future legislation) for the “above the line” charitable deduction. In other words, 2021 will be the last year that you will be able to take a deduction for a charitable contribution you made without having to itemize all of your deductions on Schedule A.
In 2021 you can deduct up to $300 per individual, or $600 for joint filers for charitable contributions without itemizing.
If you made charitable contributions in 2021, now is the time to dig up those receipts and provide them to your tax professional.
If you think you may be able to itemize your deductions, be sure to also include mortgage interest, state taxes paid (property, sales, & income), and medical expenses in the information you provide to your tax preparer.
- Health Savings Account Contribution
If you participated in an HSA-eligible “high-deductible health plan” in 2021, you may be eligible to make a tax-deductible contribution to a Health Savings Account for 2021 up to the 2021 tax filing deadline (April 18, 2022). Contribution limits are $3,600 for individuals and $7,200 for families, with a $1,000 catch-up contribution available for taxpayers age 55 and older. Contributions to HSAs are tax-deductible and withdrawals are tax-free if the funds are used for qualified medical expenses.
In conclusion, there are still some strategies that can be utilized when it comes to filing your 2021 taxes. If you have yet to make a decision on any of the above, there is still time before you file your return.
If you are interested in learning more about any of the above or taking any action, be sure to reach out to your advisor at Warren Street to get the conversation started.
Justin Rucci, CFP®
Wealth Advisor, Warren Street Wealth Advisors
Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor
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