Benefits of year-end tax planning

If you haven’t started thinking about your 2021 taxes, now is the time to do it. Yes, the tax filing deadline may still be months away, but if you don’t start planning now, you could wind up leaving money on the table.

Let us explain.

You’ll want to maximize contributions to your retirement accounts

December is a fantastic time to meet with your CPA so you can start getting your financial ducks in a row. For example, have you maximized contributions to your retirement savings accounts, such as 401Ks, IRAs, and health savings accounts (HSAs)?  When you add money to your retirement savings accounts, this helps lower your adjusted gross income (AGI).  The lower your AGI, the lesser your tax burden. For more information about contribution limits and deadlines, be sure to speak with a licensed CPA.

If you collected unemployment benefits, you may owe additional taxes

Did you collect unemployment income in the past 12 months? If so, you should know that you’ll need to pay taxes on it. If you did have taxes withheld from your payments, it may not have been enough. According to IRS data, in many cases, the tax that’s withheld from UI payments is often insufficient. (This might be especially true if you received enhanced unemployment benefits.) Suffice to say, if you collected UI during the current tax year, you’ll want to have a conversation with your CPA. If it turns out you do owe more in taxes, it’s better to start planning now than to get slapped with an unexpected bill when you file.

Did you get divorced or separated this year? That could have tax implications

This is one that a lot of people don’t think about but should. If you divorced or separated from your spouse or partner in 2021, this could have an enormous impact on your tax liability. For example, tax liability can shift dramatically depending on who is the primary caregiver for your children, who plans to take the tax credit for the children, and whether you’re receiving alimony. You’ll also need to determine which one of you will take deduction carryovers and various tax-credits, if applicable. If this sounds a bit complicated, that’s because it can be. For more information on how getting divorced or separated could impact your 2021 taxes, be sure to talk with a licensed CPA.

Are you ready to start planning for your 2021 taxes? If so, we can help. Call Hughes, Snell & Co., PA today, to schedule a time to speak with an expert.