2021 was an exceptional year for tax law as we continued to see relief packages to help stimulate the economy. Though we are already most of the way through November, we are still looking out for tax law changes that could affect 2021. The below list has some suggestions on ways to help reduce your tax liability, as well as helpful steps you can take as you prepare to finalize the 2021 tax season. 

​Be Sure to Review…

Charitable Contributions

​For the 2021 tax year, individuals are able to deduct $300 in charitable contributions ($600 if married filing jointly). Normally charitable contributions are only deductible if someone itemizes their deductions, but the Coronavirus Aid, Relief, and Economic Security (CARES) Act allows individuals to deduct this amount if they take the standard deduction. Contributions must be to a qualifying charity and must be made before December 31, 2021.

If you had a significant increase in income in 2021, consider setting up a donor-advised fund (DAF). A donor-advised fund allows you to contribute a large amount at once, take the deduction, and spread out the disbursements of funds to charities.
2021 was a great year in the stock market. Investors should consider donating appreciated stock to avoid a large capital gains tax. 

Retirement Contributions

​If you are an employee, consider increasing your 401k or 403b contributions up to the IRS maximum of $19,500 annually ($26,000 annually if you are 50 or older). Contributions that are deductible in 2021 need to be made through your paycheck with a 2021 check date.

Individuals who are not eligible for an employee-sponsored plan are likely eligible to contribute to an IRA. The deadline for IRA contributions is April 18, 2022.

If you own a business and want to save taxes while saving for retirement, consider discussing a SIMPLE IRA, SEP IRA, or a Solo 401(k). Each of these has their own contribution limits, rules, pros, and cons. For a detailed analysis on what is right for you, consider scheduling a tax planning appointment at https://calendly.com/edmondsbookkeeping/.

Required Minimum Distributions (RMDs)

In 2020 individuals subject to RMDs were allowed to skip taking the distribution from their retirement accounts and avoid a penalty. But in 2021 any individual at least 72 years old by the end of 2021 must take their RMD. Failure to take an RMD will result in a 50% penalty. Please consult with your financial advisor to determine the appropriate amount. ​

Special Considerations for Business Owners​

Business owners who found themselves with lots of cash on hand should consider personalized tax planning with their accountant before mid-December. 2021 was an exceptional year for a lot of industries, and there are many things you can do proactively to reduce your tax liability. At minimum, tax planning can give you a more accurate idea of how much in taxes you will owe on April 18th. 

​Now Is the Time to…

Get Organized

​The end of the year is a good time to get organized. If you itemize your deductions, start gathering medical receipts, charitable contribution receipts, and other relevant documents now so that you can be fully prepared for April 18th.  If you are a business owner, start tracking your income, expenses, and mileage now. 

Be on the Lookout for Important Documents

​Two new forms that you may receive in January include:

  • Letter 6419, 2021 Total Advance Child Tax Credit Payments, to reconcile advance Child Tax Credit payments
  • Letter 6475, Your 2021 Economic Impact Payment, to determine eligibility to claim the Recovery Rebate Credit

Keep these with your other tax documents to assist in preparation of your tax return.

Create an Online Account at IRS.gov

​Individuals who have not set up an Online Account yet should act soon to create an account. People who have already set up an Online Account should make sure they can still log in successfully. Taxpayers who have an Online Account may:

  • View the amounts of their Economic Impact Payments
  • Access Child Tax Credit Update Portal for information about their advance Child Tax Credit payments
  • View key data from your most recent tax return and access additional records and transcripts
  • View details of your payment plan if you have one
  • View 5 years of payment history and any pending or scheduled payments

​Make a Tax Plan for 2021 and Beyond

​For a detailed tax planning consultation, consider scheduling a one-hour tax planning appointment at https://calendly.com/edmondsbookkeeping/. We can help determine if a donor-advised fund is right for you, help choose a retirement plan for your business, identify tax savings opportunities for both individuals and businesses, or help determine total tax liability.  

Originally published at edmondsbookkeepingandtax.com on November 22, 2021.​