By Robyn A. Friedman
City & Shore Magazine
The April tax deadline will soon be upon us, but there’s still time for savvy taxpayers to take action to reduce their 2021 tax bill.
“You may think we’ve closed the door on 2021, but in fact it’s still not too late to make smart moves to cut your 2021 taxes,” says Mari Adam, a certified financial planner in Boca Raton.
Because April 15 falls on the Emancipation Day holiday in the District of Columbia, the filing deadline for 2021 tax returns is actually April 18, 2022 for most taxpayers since Washington, D.C. holidays affect tax deadlines for everyone in the same way federal holidays do.
One of the easiest ways to lower your 2021 tax bill is to make a tax-deductible contribution to a traditional IRA account for 2021. (Check with your tax advisor to determine if you can deduct an IRA contribution.) The IRA deduction limit for 2021 is $6,000, or $7,000 for those age 50 or older. An IRA contribution can be made up to April 18, 2022 and, if deductible, could reduce the taxes you’d have to pay on your 2021 return.
Health Savings Accounts, or HSAs, are another way taxpayers could score a deduction. Funds in an HSA can be used to pay qualified out-of-pocket medical expenses if you have a high-deductible health plan, Adam says. She said that single taxpayers can contribute $3,600 to their HSA, or $4,600 if they are 55 or over. Those with family plans can add $7,200 to their HSA (or $8,200 if age 55 or over). Again, these contributions must be made by April 18, 2022.
Another way to make 2021 less taxing applies to those who are self-employed or have a side gig. These folks can still add money to a retirement plan and deduct it for 2021. Adam cautions that not every type of retirement plan is eligible, so it’s important to check in with your tax advisor about funding an SEP-IRA for 2021 or making employer contributions to a solo 401(k). These contributions may not only reduce your 2021 tax bill but they will also help you build your retirement nest egg.
Make sure you update your filing status when you prepare your return. If you got married during 2021, for example, your filing status may change from single to married filing jointly, thus reducing the tax bill some couples may have compared to what they would have paid if they stayed single. Similarly, the birth or adoption of a child in 2021 may trim your tax bill as well.