Everyone loves taxes, right? Well, maybe not. For 2021 tax returns, the April deadline is coming up. Usually, April 15th is the due day, but April 15th this year falls on a local holiday, Emancipation Day, which is celebrated in Washington, D.C., causing all businesses and government offices to close.
Because of the holiday, the tax filing deadline for the 2021 personal tax return—Form 1040 or Form 1040-SR—is Monday, April 18, 2022 (April 19 if you live in Maine or Massachusetts).
No one really likes filing their taxes. Unless you are a certified public accountant—and a notably zealous one at that—filling out paperwork and poring over records and receipts is no way to spend a spring Saturday.
Typically, filing your taxes would be another annual and arduous rite of passage. Still, on the heels of the most challenging year most of us have ever had, putting a bow on the fiscal year and possibly clawing back some of what you set aside over the year could feel even better than an early-April walk in the park.
Don't get too excited to file just yet. Before you get started, take a few extra steps to get the most out of filing. It may mean a little more paperwork, but that paperwork should pay off—if not this year, certainly down the road. Let's look at what to do before you file your taxes.
Make Your IRA Contributions
Tax-deferred contributions to your individual retirement account are some of the finest tax breaks around. Don't forget to take advantage. By investing in your future, you can reduce your taxable income for this year while putting that money to work in the stock market, bond market, and beyond.
Eligible taxpayers generally can contribute up to $6,000 to an IRA for 2021 (for those 50 years old or older, the limit is $7,000). When you do this before you file, it could mean significant savings on your tax bill.
Meanwhile, that contribution, well-invested, can accrue interest over the years, meaning that you will still come out ahead when it's time to pay taxes on withdrawals.
Remember, if you were 50 or older by the end of 2021, you are allowed to contribute an additional $1,000 to your IRA. The extra tax benefit is known as the 'catch-up contribution.' As you get closer to retirement, you can add more to your retirement plan to, perhaps, catch-up with contributions you could not do in the past. With this perk, you can add a total of $7000 for the 2021 tax year.
The deadline for a 2021 IRA contribution is April 18, 2022. For planning purposes, keep in mind that the IRA regular contribution ($6,000) and 50-plus catch-up contribution ($1,000) limits remain the same for 2022, except limits for 2022 are based on your annual income.
You should also be planning for 2022. If your employer offers a 401(k), you can contribute additional money to that program if you are over age 50. The contribution limit for 401(k) plans is $20,500 in 2022. Those 50 or older can chip in an additional $6,500 in 2022 for a total contribution of $27,000. Remember, when you contribute money in these accounts, you lower your taxable income by the same amount - reducing your taxable income.
Don't forget your Health Savings Account. You cannot impact 2021 now, but you can add additional money to an HSA. You can use money in the HSA to pay for health-related expenses, including deductibles and Long-Term Care Insurance premiums. Like the 401(k), contributions will lower your taxable income for the year.
Remember, the money in an IRA, 401(k), and HSA grows tax-deferred and is an excellent tool to secure a successful future retirement. Remember, you will have to pay taxes on this money at some point - but as income when you take money out of the account.
Gather All Your Receipts
When it comes to securing deductions, don't leave money on the table—or, more accurately, in all the places old receipts turn up. Medical expenses and charitable donations—whether those donations are cash or merchandise—are tax-deductible. Proper documentation of these expenses can ease your tax burden for 2021, a year that has asked for the easing of burdens like few others before it.
Explore the Property Tax Deduction
You may believe that the generous break of up to $10,000 is limited to homeowners. Not so—this deduction is available for other forms of taxable ownership as well. Vehicles, boats, and even apartments that belong to a co-op are eligible. Ascertaining that you can make this claim is a big part of what to do before filing your taxes this year. If you've kept immaculate records, you should be able to find the necessary paperwork to claim what could be a crucial deduction on your tax bill.
Bigger Standard Deduction for Those Age 65 and Older
The standard deduction reduces your taxable income. As you get older, the standard deduction gets better. For married couples under age 65, the standard deduction is $25,100 for the tax year 2021.
For single individuals under age 65 and those who are married filing separately, the standard deduction is $12,550. Heads of household get $18,800.
See all the available deductions - 2021 Federal Income Tax Rates, Brackets, & Standard Deduction Amounts | IRS.com
One of the drawbacks of the higher standard deductions is it sets a very high bar for itemizing deductions. For some taxpayers, the higher standard deduction will mean no itemized deductions.
Simplified Tax Form Available for Seniors
If you are aged 65 and over and don't have a complicated financial situation, you could use the new simplified Form 1040-SR for seniors. The form is just two pages and includes a larger type and bigger text boxes.
Seniors who are still employed can very easily report their wages, salaries, and tips on this form. It also includes a handy chart showing the bigger standard deductions available for anyone aged 65 and older.
LTC Insurance Tax Benefits
Don't forget the premium for your Long-Term Care Insurance policy has tax benefits and can be included as one of your medical deductions if you do itemize. However, you cannot take both an itemized deduction and use pre-tax money from a Health Savings Account to pay for the premium. The premium can also be a business deduction if you have self-employment income. However, you use only one of those options.
About the Author
Mallory Knee is a freelance writer for multiple online publications where she can showcase her affinity for all things beauty and fashion. She particularly enjoys writing for communities of passionate women who come together for a shared interest and empower one another in the process. In her free time, you can find Mallory trying a fun new dinner recipe, practicing calligraphy, or hanging out with her family.
Contributor since September 25th, 2020
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Find all the resources on LTC NEWS - Resources for Long-Term Care Planning | LTC News.
Seek Professional Guidance
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- Just "Ask Mike." - Reverse Mortgages | LTC News.
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