2021 End-of-Year Tax Planning for Individuals
The end of the year is the right time to start preparing for filing your 2021 income taxes. Pandemic related tax issues, natural disasters, and proposed bills not yet passed all will work to make filing taxes a little more complicated for the 2021 tax year.
Gathering and organizing documentation and receipts now will help to make your tax return preparation less complicated, less back and forth and a little quicker from start to finish.
Home Office Expenses
Many workers have continued to work remotely throughout 2021; however, home office deductions are allowed only for self-employed taxpayers and independent contractors who use a room or an area of their home for their business.
For these individuals, you must keep records of qualifying expenses and document the square footage of your work area to calculate the home office expense amount.
Contributions to Charities
Taxpayers who itemize deductions are allowed to deduct charitable contributions, and in 2020, the CARES Act allowed taxpayers who do not itemize to take a deduction of up to $300 for cash donations to qualifying organizations.
If you plan to donate, you will want to do that before the end of this year. As always, keep receipts for tax filing documentation.
Claim Casualty Losses from Natural Disasters
In 2021 Louisiana and the Gulf Coast area experienced multiple natural disasters with ice storms in February, Hurricane Ida in August, and Tropical Storm Nicholas in September.
Taxpayers should keep thorough records of losses in case they are able to claim a casualty loss as an itemized deduction. Claiming this deduction is allowed if the taxpayer is located in a federally declared disaster area and incurred losses that insurance did not cover or did not reimburse.
Keep receipts and records documentation for tax records.
Advanced Child Tax Credit Payments
Taxpayers who received any advanced child tax credit in 2021 will need records showing the total amount of child tax credit dollars received. The amount received will determine what can be claimed on the taxpayers’ 2021 income tax return.
The IRS plans to mail letters to taxpayers in January 2022, which will indicate the amount of advance child tax credit payments paid to you in 2021. Keep this letter in your records for filing your 2021 income tax return.
Third Stimulus Payment
In March 2021, the IRS disbursed a third round of stimulus payments to qualifying taxpayers. Make sure you have documentation if you received this stimulus payment to report it accurately on your income taxes.
Contributions to IRA
You can contribute to your IRA up until April 2022, and that contribution will qualify for a tax deduction on your 2021 income tax return and reduce your tax bill.
This can be a win-win every year to save for retirement and earn a deduction on your taxes.
Pending 2021 Capital Gains Tax Rate Changes
The Infrastructure and Jobs Act, approved by the Senate and passed by the House, is waiting for the President to sign it into law. The proposed infrastructure bill would affect taxpayers for the 2021 tax year. One potential change is an updated maximum long-term capital gains tax rate, which would increase from 20% to 25%.
Year-End Tax Planning for Individual Taxpayers
Intentional tax planning at the end of the calendar year can be very helpful to all taxpayers. The strategies to consider are specific to each individual’s tax situation, and those listed above are some to consider.
Contact Griffin & Furman to talk about tax planning for you.