Tax season has already started. Many people are scrambling to get all of their documents together for their 2021 tax returns.
If you’re one of those people gathering their tax documents, keep in mind some of the following four ways you can save, now, on your 2021 tax returns:
- Contributing to your retirement account, such as an IRA, may reduce your tax bill by reducing your taxable income (depending on your tax bracket). This works especially if you haven’t maxed out on your 2021 IRA contributions. Your tax deduction is determined by your total income and filing status. You or your spouse may be covered by a retirement account at work- which limits your tax deduction. You can contribute to your IRA until April 15, 2022, so you have time! The limits are $6,000 per year for 50 years old and under and $7,000 per year for people over 50 years old.
- Charitable donations: Donations to qualified charities last year may help you save on your 2021 tax returns. Taxpayers who don’t itemize can also benefit. For the tax year 2021, individual taxpayers may deduct up to $300 in contributions to qualified charitable organizations. Married couples filing together can deduct up to $600 in cash donations made to approved charities. Donations must be made by Dec. 31, 2021. This deduction may reduce your taxable income for 2021 and, in turn, lower your federal tax bill.
- Deduct eligible business expenses: Self-employed business owners must keep detailed business expenses. These expenses may include business meals, business travel, legal fees, computer purchases, subscription fees (Microsoft Word, etc.), accounting fees (QuickBooks, etc.), marketing/advertising costs, and other eligible business expenses. Business deductions lower taxable income, which results in a lower tax bill for 2021.
- Earned Income Tax Credit (EITC): this is available for the 2021 tax year dependent on your adjusted gross income (AGI). Income limits vary depending on your filing status, AGI, and the number of dependents. If you qualify for this credit, it may offer significant tax savings.
As you prepare to file your 2021 tax return keep these 4 tax savings tips in mind. Please consult your tax preparer for more information.
AK Burton, PC, knows the current tax laws and how to work with the IRS. Our experienced tax preparers can file your business and personal tax returns and represent you to the IRS. Call us at (301) 365-1974 for a consultation. Our office is open. Covid protocols if requested. We serve the Bethesda, Rockville, and Montgomery County, MD area.