It is March, which means we are in the heart of tax filing season. People everywhere gather documents, organize their information, and prepare their tax returns. Of course, everyone wants to pay as little in taxes as possible. Are there still ways to save taxes and become more tax-efficient for the 2021 tax year?
The majority of strategic tax-savings moves that need to be done to save tax dollars and become more tax efficient must be done before the end of the year for that tax year; this means December 31st of each year is the deadline. However, there are a few tax-planning moves that can be made into the next year, with deadlines usually around April 15th and October 15th. The following are the tax-planning moves that are still available for the 2021 tax year:
• Contribute to an individual traditional IRA – If you are eligible, the deadline to do this is April 15th for the previous tax year. The contribution maximum is $6,000 for those under the age of 50 in 2021 and $7,000 for those age 50 or older. The contribution amount will reduce your taxable income for 2021, thus saving you tax dollars for that year.
• Contribute to an individual Roth IRA – If you are eligible, the deadline for this is also April 15th for the previous tax year. The contribution limits are the same as for the traditional IRA, meaning you can contribute that amount into the traditional IRA, the Roth IRA, or a combination of both, up to the maximum. A Roth IRA contribution won’t save you any taxes for the 2021 tax year, however, it could lower your taxes in the future.
• Contribute to a SEP IRA – For those people who are self-employed, the contribution deadline for a SEP IRA is October 15th for the previous tax year.
• Contribute to a Health Savings Account (HSA) – The deadline for contributing to a HSA account is April 15th for the previous tax year. A HSA contribution reduces your taxable income for 2021 and allows for tax-free growth and withdrawals for healthcare expenses.
The definitive answer is always based on several factors, which will be specific to your unique and personal situation. If you would like to ask questions about your specific circumstances, please send me an email or give me a call.