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Posted by Dennis Jao

Top 7 Tips to Prepare for Year's End Taxes

Top 7 Tips to Prepare for Year's End Taxes

As the end of the financial year draws closer, there are some steps one needs to take to have a smooth tax filing experience. Filing tax returns can be a stressful endeavor, and if careful attention is not given to it, mistakes can be made. This could lead to more tax burdens that are unneeded or issues with the IRS.

Do you want some tips on better preparing for the end of the tax year, then read on.

Sell bad investments to balance gains.

Loss Harvesting is an essential end-of-the-year strategy that sells your investment like mutual funds or stocks to have losses and then uses them to counterbalance taxable gains acquired in the year. 

If your gains outweigh your losses, you could use about an excess loss of $3000 to clear other income.

When your excess loss is over $3000, you can roll it over to the coming year. Then use it to counterbalance gains in 2021 and about $3000 of income. This can be done yearly throughout your lifetime.

Pay the most allowed to your retirement account.

Tax-deferred accounts for retirements may be the investments as they grow considerably since, over time, they compound without taxes.

401(k) plans sponsored by companies are tentatively the best option since employers match your contributions.

Try increasing your 401(k) payments to the maximum. If that can't be done, at least try contributing the sum that your employer will match.

Contemplate IRA contributions

The deadline to make your contributions is usually in April, but the earlier you pay, the earlier your funds can increase tax-deferred. 

Making deductible contributions decreases your income that can be taxed that year.

If you are self-employed, a Keogh retirement plan may be good for you but must be created before the last day of the year. And you can make contributions till the deadline for tax filing for 2021 return. The contribution amount will be determined by the plan you pick.

 Avoid the Kiddie Tax (TKT)

TKT rules were created to stop families from pushing the investment income tax bill from parents' high tax bracket to their kid's lower bracket.

In 2021, TKT taxes income above $2,200 from children's investments equal to their parents.

If they are full-time students who provide less than half their support, TKT applies until they turn 24.

Therefore, if you're planning to allocate some stocks to your child to liquidate for college expenses and the gain is quite significant, your child may end up paying the same tax rates you do if his unearned income is over $2,200.

Be watchful about your flexible spending accounts.

Many companies offer flexible plans or spending accounts to allow them to direct some of their income into a separate account that can be used to fund medical expenses or child care.

The benefits of this are that the funds in these accounts aren't taxed for social security or income. However, you have to use it, or you'll lose it. You can plan on how much you'll put into them because if you don't spend the total amount on them by the year's end, you lose the excess.

As the year's end has come & in preparation for your taxes, find out if your employer used the grace period; the IRS permits employees up to March 15 to spend the money set aside for 2021. If that's not the case, you can make a quick trip to your dentist, the pharmacy or visit your optometrist to make use of the funds remaining.

To get all you need to know, consult with an experienced tax professional who can help you file the tax form that suits you and can be sure your taxes will be done correctly, no matter how peculiar your situation is.



Dennis Jao
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