Getting Down to Brass Tax
With tax season upon us and the upcoming April 18th filing deadline fast approaching, now is the perfect time to review your finances and make sure you’re taking full advantage of all the tax credits and deductions available to you.
The following list includes deductions and opportunities that might not be trade secrets but are all-too-often underutilized. More importantly, they are still available for those who have not yet filed their 2021 tax return—so there is still time to act.
You can still make 2021 IRA contributions of up to $6,000 (or up to $7,000 for those over 50 years of age) through April 18th. Additionally, anyone looking to take advantage of a “backdoor” Roth IRA contribution might want to make the most of that process this year, as legislators have been making noise about eliminating this provision in the future. Self-employed or independent contractors can also set up and make contributions to a Simplified Employee Pension (SEP) IRA by April 18th (or even later if they extend their tax return).
April 18th is also the deadline for making a Health Savings Account (HSA) contribution. If you have a qualifying high-deductible plan, you can contribute up to $3,600 for your own coverage or up to $7,200 for family coverage. Provided distributions from the account are used for qualifying medical expenses, HSAs offer a triple benefit: you receive a deduction on the contribution, growth in the account is tax deferred, and qualifying distributions are not taxable.
Check your tax credits
If you and your spouse both worked during 2021 and you have children under 13, then there may be dependent care credits available to you. The credit is calculated based on your childcare expenses and the amount of your income. Remember, credits are a reduction of your total tax obligation, not just your taxable income so it’s very important to check if you qualify. Even more importantly, tax legislation passed in 2021 doubled the amount of tax credit available to most taxpayers!
If you started a new business or are self-employed—both of which have become more common during the COVID disruption—be aware that there are deductions available to self-employed individuals that aren’t available to W-2 employees. From mileage and travel expenses to home office and work supplies—and even health insurance premiums—there are plenty of opportunities for deductions. Even things like accounting software, business furniture and electronics may be eligible. Your business may even be eligible for its own retirement plan such as the SEP IRA mentioned above. Check with your CPA or financial advisor to make sure you’re realizing all available benefits.
Review your withholding
While many of us love to see a big tax refund each year, that means you’ve essentially been giving an interest free loan to the government for the last year. Ideally you want more of your money held in your own pocket, not in Uncle Sam’s, throughout the year. This is the perfect time to review your withholding for the upcoming year to ensure it is the proper amount.