Can You Save Turbotax and Continue Later

Top

4 Last-Minute Ways to Reduce Your Taxes

Updated for Tax Year 2021 • October 16, 2021 06:10 AM

---

OVERVIEW

Even if you've already earned most of your income for the year, you can still make some common-sense moves to reduce the amount of income taxes you owe in the current tax year.

---

For information on the third coronavirus relief package, please visit our "American Rescue Plan: What Does it Mean for You and a Third Stimulus Check" blog post.

---

As the year ends, you may feel it's too late to save any money on taxes. However, even if you've already earned most of your income for the year, you can still make some common-sense moves to reduce the amount of tax you'll owe. If you own a business, you have access to an even greater variety of ways to reduce taxes.

Defer income

Generally, the longer you can wait to pay taxes, the better.  Deferring income from the current year into the next is one way to delay paying taxes and reduce the current year's taxable income.

For example, if you're an employee and you're due a year-end bonus, you can ask your employer if they're willing to push that payment into next year. Although this strategy can save taxes in the current year,

• Deferred income may create tax problems the following year, particularly if you find yourself in a higher tax bracket.
• You'll have to balance any current tax savings with the taxes you'll have to pay in the future.
• However, if your priority is to reduce this year's taxes, the less income you can realize in the current year, the better.

Make an IRA contribution

Contributions to a traditional individual retirement account can be tax-deductible in the year you make them. Different IRS rules on IRA contributions apply to differing situations. However,

• You can generally deduct the full amount of an IRA contribution if you and your spouse aren't covered by retirement plans at work.
• If you and your spouse are covered, your contribution might be limited based on your adjusted gross income.

For example, if you are in the top tax bracket of 37% and make a $6,000 deductible contribution—the maximum for 2021—you can save as much as $2,220 in taxes based on 2021 tax rates. Best of all, unlike most tax-saving strategies that must be in place by December 31, you can contribute to an IRA all the way until tax filing day.

Take capital losses

If you lose money on a capital investment, such as a stock, you can use that loss to reduce your taxes. But you'll have to sell the stock at a loss first, a process known as "realizing" a loss.

• Once you realize a loss, you can use it to offset any realized capital gains you may have.
• If you have more capital losses than gains, the IRS allows you to use up to $3,000 of excess loss to offset your ordinary taxable income.

The IRS will disallow your loss for tax purposes in the case of a "wash sale." A wash sale occurs if you buy back the same investment or one that is near identical within 30 days before or after taking a tax loss.

Coupled with the offset of your capital gains, taking capital losses can wipe out a significant amount of your tax liability.

Bunch expenses

If you own a business, you can take a deduction for a wide range of business-related costs. If you're keen on reducing this year's income taxes, bunch your expenses as much as possible into the current year.

Some common business tax strategies include:

• Making any anticipated major business-related purchases at the end of the year instead of the beginning.
• Paying your employees bonuses at year-end, rather than at the beginning of the year.
• Prepaying expenses. For example, if you regularly spend $5,000 per month to buy supplies, consider buying $15,000 worth at year-end to get you through the next three months. By making a bulk purchase at year-end, you'll get a deduction in the current tax year for that business expense.

Remember, with TurboTax, we'll ask you simple questions about your life and help you fill out all the right tax forms. With TurboTax you can be confident your taxes are done right, from simple to complex tax returns, no matter what your situation.

All you need to know is yourself

Answer simple questions about your life and TurboTax Free Edition will take care of the rest.

For simple tax returns only
See if you qualify

Real tax experts on demand with TurboTax Live Basic

Get unlimited advice and an expert final review. Done right, guaranteed.

For simple tax returns only

• TaxCaster Tax
  Calculator

  Estimate your tax refund and
  where you stand

  Get started

• Tax Bracket
  Calculator

  Easily calculate your tax
  rate to
  make smart
  financial decisions

  Get started

• W-4 Withholding Calculator

  Know how much to withhold from your
  paycheck to get
  a bigger refund

  Get started

• Self-Employed
  Expense Estimator

  Estimate your self-employment tax and
  eliminate
  any surprises

  Get started

• Crypto Calculator

  Estimate capital gains, losses, and taxes for
  cryptocurrency sales

  Get started

  Comenzar en Español

• ItsDeductible™

  See how much
  your charitable donations are worth

  Get started

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.

schraderwhingent.blogspot.com

Source: https://turbotax.intuit.com/tax-tips/tax-planning-and-checklists/4-last-minute-ways-to-reduce-your-taxes/L3eJ81kRC

Share this post