Wipe the Slate Clean: 5 Tax Tips for 2021

At the end of the year, you may think your tax bill is set in stone. However, this isn’t always the case. Keep reading for some helpful tax tips you can use in 2021. These tips will help a person lower their tax liability, save money, and avoid penalties.

1. Make Contributions to Retirement Accounts

If a person did not fund their retirement account in 2020, they should do this by April 15, 2021. This is the deadline for all contributions to a traditional IRA, according to the CPA Department. This is true regardless of if the account is deductible or not or a Roth IRA.

Those with a Keogh or a SEP can get a filing extension to October 15, 2021, and they can wait until that point to contribute to the accounts. To begin tax-free compounding as fast as possible, try not to wait to make 2020 contributions.

2. Make Any Last-Minute Estimated Tax Payments

If a person did not pay enough to the IRS during the year, they may face a rather large tax bill in the future. Also, the individual may owe a lot of penalties and interest. According to information from the IRS, it is necessary to pay 100% of the prior year’s tax liability or about 90% of the current year’s tax. If this is not done, the person will owe an underpayment penalty.

By making the estimated payment by January 15, it is possible to erase any penalty that may have occurred in the fourth quarter. However, the person will still owe penalties for earlier quarters if no estimated payments were sent.

3. Get Organized for Tax Time

Good organization is not going to reduce the taxes someone owes. However, there are some other benefits. For example, trying to get all tax documents together at the last minute is challenging and time-consuming. Take some time now to gather all 1099s, receipts, W-2s, and other documentation that will be needed. This will make it easier when it is time to file.

4. Find the Proper Tax Forms

Not all the tax forms needed will be at the library or post office. A better resource is the IRS website. Take time to view or download several publications and forms from the IRS or have them sent in the mail. It is possible to find documents online dated all the way back to 1980. The IRS will also provide additional information about where state publications and forms can be found.

5. Itemize All Deductions

It is much easier to take the standard deduction, but it may be possible to save money by itemizing. This is especially true for individuals who are self-employed, own a home, or live in a high-tax area. There are some deductions that are well-known, while others are not as common. As a result, it is a good idea to speak with a professional, if necessary, to ensure all the deductions a person is allowed to claim are deducted.

When it comes to 2021 taxes, there are a lot of factors to keep in mind. The tips and information here should help anyone make a plan for paying their taxes. Be sure to keep this in mind to take the right steps and minimize your tax liability.