Christmas will be different this year. Instead of neatly wrapped packages with
sparkly bows, our presents will be in an Amazon box. Santa has been replaced by
the UPS man. But not all things have changed, and that’s your taxes. The IRS
flinches for no man or pandemic, and rest assured your taxes will come due in April.
So start planning now and take advantage of some last-minute planning tips.
Tip #1 – Charitable Contributions
This year, because of the CARES Act, those generous Marylanders who wish to
donate to charity can give up to $300 in cash to eligible charities and take a
deduction on top of their standard deduction. For those who itemize this year, you
can get a charitable deduction of up to 100% of your adjusted gross income (AGI).
Nonprofits in our area need your help and this year the IRS is encouraging giving
more.
Tip #2 – Health Savings Accounts
If it’s open enrollment time at your company, sign up for a Health Savings Account (HSA). A HSA is offered by companies with high deductible health insurance plans to save pre-tax money for health expenses. You can use the funds for copays, prescriptions, or hospital costs, and in 2021 you can contribute $3,600 for individuals and $7,200 for a family. This is a great way to reduce your taxable earnings for next year.
Tip #3 – Roth Conversions
Because the Tax Cuts and Jobs Act lowered tax brackets, with the highest tax bracket now 37% down from 39%, it’s a fire sale for Roth IRA conversions. The tax cuts are set to roll back to pre-2017 rates in 2025, so take advantage of the lower rates now. But beware, your tax bill on your conversion will be due April 15th, so you need to have enough funds to cover the taxes. But after that, your money will grow tax-free, be free of RMDs, and can be withdrawn tax-free.
Tip #3 – Annual Gift Tax Exclusion
Don’t forget the annual gift tax exclusion. This year, you can make cash and asset gifts to friends or family up to $15,000 or $30,000 if filing jointly. You can also make payments for certain educational and medical expenses paid directly to the provider, which will not fall under the annual gift tax limits
We know this is a hectic time of year, but we’re here to help. If you’d like to make a charitable gift or a Roth conversion or take advantage of the annual gift tax exclusion, contact us. We would be happy to work with your tax advisor to facilitate the transactions that will save you money in taxes you will pay on April 15th.