Decrease your tax bill: Year-end planning tips for 2021
As the leaves fall, it’s a reminder the end of the year is quickly approaching and it may be time to consider ways of decreasing your tax bill. Fortunately, there’s still plenty of time to make smart financial decisions. Whether it’s decreasing your tax bill or increasing the earnings on your money, here are a few tips for everyone.
This year has seen tax law changes affecting young families to folks who are already retired. Many households with children under the age of 18 and income below certain thresholds have been receiving monthly checks up to $250 per child since July (or $300 for children who are five or younger). If you’re eligible and not receiving the payments, then you’ll still be able to claim the credit when you file your taxes this winter.
One important distinction to know is the payments are advance payments of a refund parents typically claim when they file their tax return so if you’re used to receiving a refund in April be prepared to receive less since you’re receiving part of the credit now.
How using Qualifed Charitable Distributions can decrease your taxes
For retirees, the Required Minimum Distribution (RMD) rules are back in effect for retirement accounts after the rules were waived for 2020. While the starting age has been delayed to 72, anyone over age 70.5 is eligible to make Qualified Charitable Distributions from their IRAs to charities while simultaneously satisfying their required distribution. For people who don’t itemize their deductions, this is a great way to support charities while reducing your tax liability.
Another charitable deduction to consider for non-itemizers is the $300 ($600 for married couples) deduction for an “above the line” deduction for cash donations. Under current law, this benefit will expire after 2021 but it’s available to anyone, regardless of age.
Premium Tax Credit income threshold changes
If your health insurance is provided by the Health Insurance Marketplace, the Premium Tax Credit income thresholds were changed for 2021 and 2022. Under the old rules, if your income exceeded certain thresholds, you wouldn’t qualify for any credit which created a significant cliff where one dollar more of income could result in losing thousands of dollars of tax credits. Under the new rules, your premiums are capped at 8.5 percent of your income, so the credit doesn’t drop nearly as quickly. Once again, if you didn’t have your premiums adjusted already this year, you’ll receive the additional credit when you file your 2021 tax return.
Consider buying U.S. Series I Savings Bonds
Finally, in our low interest rate environment, finding a bank account or CD paying anything decent has been difficult. I wrote about U.S. Series I Savings Bonds in June after the rate increased to 3.54% thinking that was a pretty good rate. As of November 1st, the new rate is now 7.12 percent! This new rate is guaranteed for the next six months so if you followed my suggestion in June, you’ll earn over 5 percent for the first 12 months you own the bond (which is important since you cannot redeem the bonds for at least 12 months). Try finding a 12-month CD paying this much in interest!
As seen in the Racine Journal Times | November 2021
Related post: Your Holiday Wellness Plan Comes Down to Avoiding Stress and Taxes
