This year might be almost over, but there are still plenty of steps you can take to minimize your tax bill in 2021. Focusing on your finances may not be as fun as concentrating on the holidays (although, it might be an even draw this year), but you’ll be glad you did if you realize significant savings.
Here is a list of things to take care of before you ring in the New Year:
- Check your withholdings. There might only be a few pay periods left in 2020, but there’s still time to make adjustments. Review your last paystub to see how much income tax you’ve paid this year. If it’s too little, you could end up owing money to the IRS.
- Contribute to your retirement plan. You can defer paying income tax on up to $6,000 deposited into a retirement account. If you’re 50 or older and still working, you can contribute an additional $6,000 to a 401(k) plan or $1,000 to an IRA.
- Prepay bills. Whether you’re the parent of a college student or in school yourself, you may be able to lower your tax bill by prepaying tuition.
- Donate to charity. Charities need donations more than ever. And if the spirit of the holidays doesn’t motivate you to give generously, maybe this will: depending on your tax bracket, a $100 donation to your favorite charity will cost you just $65 once the tax savings are factored in.
- Offset capital gains. The stock market has reached many highs and lows this year. If you sold stock this year for a taxable gain, you should consider selling additional stocks that have fallen below your purchase price to offset your capital gains.
- Talk to a tax expert. The Tax Cuts and Jobs Act created a lot of changes to the tax laws. Talk to an accountant or tax expert about specifics.
Whether you choose to take one step or all of them, the last thing you want to do is become a Monday morning quarterback. Now is your chance to take action to reduce your tax bill. As always, Boris Benic and Associates can help you look at your individual situation to decide what moves to make before December 31st.