The previous federal tax overhaul, which was signed into US law by Trump in 2017, has led to reduced individual income tax brackets – but also eliminated the ability to itemize deductions for a number of taxpayers. Nonetheless, these provisions will expire in 2025 unless there is further legislation to make such cuts permanent. There is also the possibility that the tax law could be repealed at an earlier stage.
Wealthier taxpayers – those who make over $400,000 – should take the time to plan for the potential for future tax increases. Consider a multi-year tax planning approach.
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Effective Tax Strategies for Lower Taxable Income
Here are some of the most effective strategies to lower your taxable income:
Top Off Your Retirement Savings Plan
Any funds that are contributed towards an employer-sponsored retirement plan are not included in your taxable income. This includes the traditional 401 (k). If you’re over the age of 50, you may contribute as much as $24,000 into this retirement savings plan.
If you think you’re close to exceeding the standard deduction, think about maximizing your gift to charity and paying property taxes early. Paying any annual property taxes before the end of the year will allow you to deduct this payment from your taxable income.
By making charitable contributions and itemizing these before the end of the year, you can reduce your taxable income. Save your credit card statements – or in the case of cash contributions your canceled checks. For donations to specific charities or charities of more than $250, there are additional requirements for claiming a deduction. Know that donations made by credit card before December 31, 2021, can be deducted even if you pay the credit card bill in January.
Strategies for families
It’s almost certain that your family will face healthcare expenses from time to time. A health saving account, or HSA, is another way to reduce taxable income. Contributions to this account are tax-deductible and withdrawals are tax-free, as long as the money is being used for qualified medical expenses.
If you’re married with children and your spouse remains home to care for the children, you can contribute some of the income you earn into a separate spousal IRA or Roth IRA on behalf of your spouse. If you’re separated or divorced, look carefully at the various options for dependent tax and child credits to ensure that you’re minimizing overall tax liability.
2021 Standard Deduction
The standard deduction for single taxpayers is $12,550. This is the same for married taxpayers who are filing separately. This amount is increased to $18,800 for heads of a household. And for married taxpayers who are filing jointly this amount is $25,100.
Home Office Deduction under COVID-19
The home office deduction along with other employee business expense was eliminated with the Tax Cuts and Jobs Act (TCJA). This change suspended certain expenses restricting home office deductions and other employee deductions.
The Child Tax Credit
Eligible families will receive the new 2021 child tax credit of up to $3,600 for each child. This amount is paid by installments throughout the year.
Tax Return Deadline 2021
The Treasury Department and Internal Revenue Service announced that the federal income tax filing due date for individuals for the 2020 tax year has been extended to May 17, 2021 without penalties and interest, regardless of the amount owed. This postponement applies to individual taxpayers, including individuals who pay self-employment tax. Penalties, interest and additions to tax will begin to accrue on any remaining unpaid balances as of May 17, 2021. Individual taxpayers will automatically avoid interest and penalties on the taxes paid by May 17.
The Forms Needed for Your IRS Tax Return 2021
There are multiple forms and schedules that you might need when filing your taxes. Three of these IRS forms are sent DIRECTLY to you. These forms are the 1098, 1099, and W-2. The other forms are IRS forms that may be required when preparing your tax return are:
- Form 1040-SR and form 1040
- Schedule A (used for itemizing)
- Schedule B (used for reporting dividends and interest)
- Schedule C (used for small businesses and freelancers)
- Schedule D (used for capital gains)
- W-2 (used for reporting income from a job)
- Form 4868 (used for applying for an extension)
- Form 1040X, 1040a, 1040ez (used to fix or amend a tax return)
- Form 1099 (used for various types of income received)
- Form 1098 (used to report mortgage interest paid)
Get Your Tax and Accounting Questions Answered by Our CPA Firm in El Paso, TX
If you’re looking for a reputable CPA firm in El Paso, TX consider calling us at Marcus, Fairall, Bristol + Co., PLLC! We’ll answer any and all of your accounting related questions such as IRS issues. We offer our clients with a variety of accounting services such as the following:
- Forensic Accounting
- Tax Problems and Resolution
- Tax Planning for Individuals
- Small Business Accounting
- Non-Profit Accounting
Marcus, Fairall, Bristol + Co., PLLC
230 Thunderbird Dr Ste G, El Paso, TX 79912
Phone: (915) 775-1040
info@marcfair.com