Tasty Tax Tips for 2021 and Beyond
This year’s tax filing season is underway, so the time is ripe for some tax tips for 2021. And one for 2022, as well!
Take That to the Bank
You finished your 2020 tax return, and you have a refund coming. Huzzah! When you file, tell the Internal Revenue Service you want to use direct deposit to put the funds right into your bank account. It will be must faster than waiting for a check in the mail. That’s especially true this year, with the IRS digging out from under a mountain of unopened mail. What’s more, if/when another stimulus payment goes out, the Treasury Department will have the info it needs to get you your money faster.
Choose Your Income for the Earned Income Tax Credit
Congress passed the Coronavirus Aid, Relief and Economic Security (CARES) Act to provide economic relief from effects of the pandemic. As part of that, you get to choose this year between using your 2019 or your 2020 income to compute the Earned Income Tax Credit. The EITC is designed to help low-income families, and the amount of this refundable credit depends on your income as well as how many children you have.
Fun with Retirement Funds
The CARES Act contained several options for taxpayers to handle the pandemic money squeeze. One provision let you take money out of your IRA or 401(k) without the 10-percent early withdrawal penalty. This option is for COVID-impacted taxpayers under 59-1/2.
You will have to pay income tax on the amount you take out, though. The good news is that you can spread out paying that tax over three years.
Another provision affects taxpayers over 70-1/2, who normally have to take Required Minimum Distributions from their retirement accounts. But this year those seniors can keep their money where it is if they want to.
And don’t forget! Just like every year, you can make an IRA contribution up until April 15 to reduce your last year’s taxable income.
NOLs: Carry Me Back to Old Tax Returns
Congress brought back the option of using a Net Operating Loss (NOL) to offset your income in other tax years. Specifically, you can apply your NOL against past tax returns, earning you a refund for those years. If you’re anticipating higher taxes in the years ahead, though, it might be preferrable to hold onto that NOL to apply against future income.
Let’s Do Lunch
The business lunch (and dinner) took a hit several years back when Congress decided the cost of those meals was only 50 percent deductible. But now – at least for 2021 through the end of 2022 – you can deduct 100 percent of the cost of business meals.
Some Good News and Some Bad News
The good news? Gather those receipts for cash charitable contributions. Even if you use the standard deduction, you can take up to $300 straight off your income.
The bad news? A lot of people received unemployment benefits in 2020. If you were one of them, you’ll pax income tax on those benefits.
This article lists five strategies to save on taxes for this coming year.
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