Updated: Dec 6, 2021
It's December, which means there's less than one month to get those end-of-year smart tax moves in!
Maybe taxes aren't your thing, and you'd rather do some holiday shopping (or just about anything else) rather than think about them. I totally get that, but future you will be glad you took a few minutes to go through this list and take advantage of tax savings where you can.
"Tax planning" isn't only for the ultra-wealthy. There are some items even us regular folk can complete to make sure we're not overpaying and getting the most benefit we can.
Let's roll down this list of five things to check and implement before the stroke of midnight on December 31.
Cash Gifts to Charity (Non-Itemizers)
Like 2020, the 2021 rules allow deductions for cash donations to eligible organizations, even if you don't itemize. This year, individuals can again deduct up to $300, but married couples filing jointly can deduct up to $600. Ka-ching!
What You Can Do Before the End of the Year: If you haven't met the limit yet--and have the means and desire to do so--you can find some good causes to donate to by the end of the month. Just be sure to keep those receipts!
Health and Dependent Care FSAs
Do you participate in a health or dependent care flexible spending account (FSA) at work? You may be able to carry over some amount to next year, but you'll need to check with HR to see what your employer's policy is. (Here's some information from the IRS about this new law).
What You Can Do Before the End of the Year: Check on your employer's policy and use up any amount that can't carry over.
Have a health savings account (HSA)? The 2021 limit for deductible contributions to HSAs is $3,600 (individual) or $7,200 (family). A $1,000 extra catch-up contribution is allowed if you're 55 or older.
Even if you typically deduct contributions from your paycheck, you can generally make an extra contribution from your bank account, so go ahead and top that baby off if it makes sense for your financial situation.
What You Can Do Before the End of the Year: Can you afford to contribute more to it? Get it in before 2022.
If you have a 401(k), 403(b), a qualifying type of 457, or a TSP, the max contribution is going up to $20,500 next year (catch-up of $6,500 for 50 and older remains the same), so you can bump up your contribution even if you're maxing it out now.
2021 IRA contributions are capped at $6,000 (catch-up of $1,000 for 50 and older) and don't have to be made until the tax filing deadline next year, but putting it in now gives that money more time to grow.
What You Can Do Before the End of the Year: Technically, nothing, but I'll be super proud of you if you get those IRA contributions in and bump up your percentage contribution to your employer plan.
Tax Loss Harvesting
Got any loser investments (in a taxable account) you'd like to dump? If you follow the rules, you can use those losses to offset capital gains and even taxable income. Be mindful of IRS limitations and the wash sale rule.
What You Can Do Before the End of the Year: Look over your capital gains and losses for the year to see where you stand. If you have some losses you could take to offset gains or income, now could be the time to take advantage. Consult with your tax or financial advisor to ensure you get the benefit if you're not sure how this works. Don't play with the IRS, y'all.
Important: Every person's financial situation is different, and these tax strategies may or may not work for you. Please consult your tax professional or financial advisor before implementing them.
Happy tax savings!