And here’s one more sweet treat: a collection of Keto holiday cookie recipes you can enjoy without all the usual sugar. Every recipe I try from this website seems to turn out great.
Here are 10 solid tips (plus a bonus) to help you save on this year’s taxes. As one of my wholesalers used to say, you have to pay your taxes…but you don’t have to tip.
1. Donate to a charity: do this to help others, of course. But if you itemize deductions, you can deduct cash and non-cash donations to qualified charitable organizations and thus reduce your taxable income. But even if you don’t have enough deductions to itemize, you can still deduct up to $300 in cash charitable donations from your 2021 taxes!
2. Check into the Other Dependent Credit (ODC): multi-generational families and caregivers, this is the one for you. If you provide financial support to a relative, you can get up to a $500 tax credit. This means that $500 is taken off the top of any taxes you owe. You have to provide more than half of that dependent’s financial support during the tax year, and they must be a U.S. citizen, resident, or national. It’s not much, but it’s something…and kudos to you for taking care of the fam.
3. Make use of some other last-minute tax deductions: for example, if you’re a homeowner and make an extra payment on your mortgage before the end of the year, you can add the additional mortgage interest to your deductions. Or if you have enough medical expenses (7.5% of your adjusted gross income) and are itemizing your deductions, you may want to rack up any additional medical expenses this year. Alternatively, you could take a class to improve your workplace marketability and use the Lifetime Learning Credit of up to $2,000 per person this year.
Just watch out if you are or may be subject to alternative minimum tax (AMT). You don’t want to mistakenly trigger AMT or make it worse by increasing your deductions. You can learn more about AMT here.
4. Maximize contributions to retirement accounts: if you have a 401(k), IRA, or other retirement account, try to contribute the maximum IRS-allowed amount for this year. Every dollar you contribute comes off your taxable income. And “retirement” accounts also include Health Savings Accounts (HSAs). You have until April 15 of next year to contribute to an IRA or HSA for this year, but only until Dec. 31 of this year for 401(k) contributions.
5. Contribute to a 529 plan: a 529 plan is a tax-advantaged account you can use to save for a kid’s education. As long as you use the money for education-related expenses, the growth in the account isn’t taxed along the way and you can withdraw the money tax-free. Most states give a tax deduction to residents who contribute to their state-sponsored 529 plans. Some states may even allow a deduction for contributions to any state’s 529 plan. This might be a good way to rope the grandparents into making a contribution, too. But as you may have guessed, if your state doesn’t have income tax this tip is N/A for you.
6. Defer income to next year: if you can defer a bonus or other income to next year, you won’t have to pay income tax on it this year. If you’re close to going up a tax bracket this year, this might be a good strategy for you. But if you’re going up a tax bracket next year, anyway, don’t bother. You’ll just be deferring even more income to pay higher taxes on next year.
7. Do some tax-loss harvesting: by this, I mean sell any investments which have lost value in order to balance out any investment gains you’ve realized this year. If your losses actually exceed your gains, you can use up to $3,000 of your losses to reduce your regular income. If you have more than $3k in losses, they can also be carried over year after year to offset gains and and/or offset up to $3k in income.
8. Review your Flexible Spending Account (FSA): if you have money left in your FSA, you may be able to carry over some of the unused money to next year. But check with your benefits team: some plans require you to spend any carryover dollars within 2.5 months of the end of the current plan year. If you have more than the allowed carryover amount left in your account, see your doctor, dentist, and/or eye care professional or stock up on Aleve!
9. Make a fourth-quarter estimated tax payment: this one is only relevant for those of you who are pretty sure you haven’t paid enough taxes this year. If that’s the case for you, do yourself a favor and make an estimated tax payment sometime before January 15 of next year. This will help soften the blow and even avoid potential penalties. Yeah, I know it’s the holidays and you already spent the kitty on an Xbox and gingerbread cookies, but if you can scrape together anything at all by January 15, you’ll be in better shape. Which leads me to #10:
10. Review your W-4 and adjust as necessary: a W-4 is a tax form you file with your employer. It tells them how much tax to withhold from your check for taxes. If you owed taxes last tax year and/or think you might owe this year, have a look at your W-4. You might also want to review your W-4 if you had a big life change this year like earning more money, earning less money, being unemployed, having a baby, or starting a new job. Adjust your W-4 so you can start next year fresh, and not have too much or too little taken out of your check.
11. Bonus tip #11 is to pull this year’s tax documentation together and schedule a meeting with your tax advisor for February. I know you’re busy with all the cocktail parties and eggnog…but Future You will thank Current You so much for doing this. You won’t have your W-2s or 1099s yet, but you can avoid the rush by pulling together any receipts and other tax documentation now, so you’re ready to get your taxes going ASAP next year. I would also set up an appointment with the tax pro (or with yourself if you do your own taxes) for February, because the IRS requires your employer to distribute your W-2s by January 31 and then you’ll have everything you need before the appointment.
I hope some of these tips will be of help to you, and I wish you a happy and healthy New Year!