Year End Tax Letter 2021
2022 Standard Deduction Guidelines
The new 2021 standard deductions are $12,950 single, $19,400 for the Head of Household, and $25,900 for those filing as Married/Jointly. The Child Tax Credit is the same as 2020 at $2,000 for dependents under 17 and $500 for dependents over 16.
Here are a few things to think about for year-end tax planning:
If you think that you will itemize and you need to make a trip to the DI or Salvation Army do so before December 31st. Be sure to get a receipt and write the items and value of each item on the
receipts. Some taxpayers strategize by bunching charitable deductions in one year. This means they itemize one year and take the standard deduction the next year. To do this you would wait to pay
your 2021 charity or make 2021 donations. Instead, make your donations in January 2022 and make any additional 2022 donations by December 31, 2022, to include your donations in one year. This will give you twice the deduction in one year and allow you to take the standard deduction on your off year. You could also do this with other itemized deductions, such as medical expenses if you can manage them into a specific calendar year. Without itemization, you can deduct a maximum of $600 Married and $300 Single if you gave it to a qualifying charity.
Depending on your income, you may be able to get a deduction for an IRA contribution for 2021 and 2022 of up to $6,000 (or $7,000 if you are over 50 years old). Your IRA deduction will count even if you wait until tax filing day in 2022 (Monday, April 18, 2022). If you are over 70½ years old and choose to take a 2021 distribution from your IRA account, you can make that distribution payable to the charity of your choice tax-free.
If you have a few underperforming stocks that you wouldn't mind unloading, now is the time. If you have them, you can sell your stocks at a loss to offset any capital gains you may have for profitable stock sales throughout the year. If you end up with a capital loss, you can carry that loss for later years and even write off up to $3,000 against your normal income for the year.
This time of the year is when employees must specify how much salary they will set aside in Flex Spending Accounts (section 125) for medical and child care expenses. Using flex funds to pay for medical and child care expenses save federal and state taxes but also saves an additional 7.65% in FICA and Medicare taxes. Be sure to estimate medical and child care expenses low. Extra money left in your Flex Spending Accounts at the end of the year is
Please call me for the answers to your questions about early distributions from a retirement fund or planning your retirement. A simple phone call may save thousands of dollars in additional taxes and penalties.
As always feel free to call me anytime for answers to your tax questions (including major events) at no additional cost. Look for your appointment confirmation and questionnaire to come in the
mail by January 5th or sooner.
Have a Merry Christmas and Happy New Year!