With a few days remaining in the year, you still have time to take some steps to minimize taxes this year. Check out these year end tax tips.
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If you are using itemized deductions be sure to get receipts dated in 2021.
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Make your charitable contributions before year-end. *Get documentation for your donation.
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Go through the house and closets to clear out anything you haven’t used for a year or more. If the clothing, appliances, furniture, pictures, etc., are in good condition – take pictures or video to prove it. Then donate them to your favorite charity. *Get documentation for your donation.
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If you want to make a really big donation, but don’t have time to make the arrangements, consider having your brokerage or financial institution open a Donor-Advised Fund. You can fund it before year-end and distribute the donations to your charities in 2022.
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Pre-pay your 2022 installment of property taxes (unless you have already reached the $10,000 State and Local Tax (SALT) deduction limit.
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Everyone aged 72 and over must take their Required Minimum Distributions (RMDs) from their IRAs and retirement accounts.
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There is a 50% penalty (excise tax) for failing to draw the funds.
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If you don’t really need to use that money, and don’t want to add it to your adjusted gross income for the year, consider sending the amount of your RMD directly to your favorite charity.
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Parents dealing with someone that does not support your children, but claims them anyway. Get an IP PIN for each child, so that only you can claim the child on an electronically-filed tax return. Do it as soon as the portal opens in January – gather all the information now – Get an IP PIN here. Get one for yourself if you think your identity has been compromised.
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Business assets – buy things you are going to need for next year. But start to put them to use this year, or you won’t be able to get the deduction until next year. Some common business tax strategies include:
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Making any anticipated major business-related purchases at the end of the year instead of the beginning.
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Paying your employees bonuses at year-end, rather than at the beginning of the year.
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Prepaying expenses. For example, if you regularly spend $5,000 per month to buy supplies, consider buying $15,000 worth at year-end to get you through the next three months. By making a bulk purchase at year-end, you’ll get a deduction in the current tax year for that business expense.
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Make estimated tax payments before January 18, 2022.
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Make contributions to a traditional individual retirement account can be tax-deductible in the year you make them.
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Defer income from the current year into the next is one way to delay paying taxes and reduce the current year’s taxable income. If you’re an employee and you’re due a year-end bonus, you can ask your employer if they’re willing to push that payment into next year. Although this strategy can save taxes in the current year. The same concept applies to business owners.
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Deferred income may create tax problems the following year, particularly if you find yourself in a higher tax bracket. You’ll have to balance any current tax savings with the taxes you’ll have to pay in the future. However, if your priority is to reduce this year’s taxes, the less income you can realize in the current year, the better.
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Business Expenses
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Making any anticipated major business-related purchases at the end of the year instead of the beginning.
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Paying your employees bonuses at year-end, rather than at the beginning of the year.
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Prepaying expenses. For example, if you regularly spend $5,000 per month to buy supplies, consider buying $15,000 worth at year-end to get you through the next three months. By making a bulk purchase at year-end, you’ll get a deduction in the current tax year for that business expense.
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If you lose money on a capital investment, such as a stock, you can use that loss to reduce your taxes. But you’ll have to sell the stock at a loss first, a process known as “realizing” a loss.
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