By Rosalyn Partin, Manchester H&R Block
As we approach the end of 2021, there are some year-end tax moves that may help you save on your tax return. This article highlights some of the strategies you may want to consider.
Individuals who make qualifying charitable contributions before the end of 2021 will be able to deduct $300 ($600 for the Married Filing Jointly filing status) on their tax return. This deduction can be taken even if you use the standard deduction. Bunching personal expenses that qualify as itemized deductions can also be a good strategy. Since individuals deduct expenses in the year they are paid, you may be able to itemize in one year and use the standard deduction in the next year by paying two years of itemized deduction expenses in one calendar year. For instance, if your 2020 real estate tax was paid in 2021, you may want to pay your 2021 real estate tax before January 1, 2022 so you can “bunch” it with your other itemized deductions to possibly push you over the standard deduction and therefore give you a larger deduction. You can do the same with charitable contributions by combining multiple years of donations into one calendar year.
Investors may want to speak with their investment advisors about tax-loss harvesting which allows you to offset capital gains with losses. If you have a large net capital gain so far this year, you may want to sell low performing investments with a loss to offset the tax on the gain. Also, generally if your losses exceed your gains, you are able to deduct up to $3,000 of the excess against your ordinary income.
Taxpayers or those who have dependents in college or vocational school may want to consider paying the spring semester tuition before the end of 2021 instead of waiting until January. Education tax credits are based on payments made in 2021, so if you aren’t already able to qualify for the full amount of credit you may increase your tax credit by accelerating the payment of next year’s tuition.
Business owners (including farmers) who expect to have large taxable profits may want to consider the impact of paying expenses before the end of the year that they would otherwise wait to pay. By paying the expense in 2021, the expense will reduce the taxable profit and thereby reduce tax. Farm-related taxpayers are generally allowed to deduct prepaid purchases of supplies in the year the purchase is made versus the year the supplies are used. Therefore, some farmers utilize prepaid fertilizer, feed, seed, chemicals and other ordinary farm supplies to reduce taxable income. The prepaid expenses are subject to conditions which must be met in order to be deductible. Asset purchases can also create significant tax savings if the purchase is completed before January 1.
If you are interested in applying tax saving strategies for 2021, now is the time to make preparations. Contact your tax advisor and investment advisor for help with estimating your tax and developing possible tax-saving moves.
If you have questions about year-end tax saving strategies, please call your local H&R Block office. In Manchester TN call 931-728-9462. H&R Block Has Your Back!