Year End Tax Tips

Christian talk radio with Rob West

There are lots of jokes about paying taxes, but even better than the jokes is finding ways to minimize what we legally have to pay in taxes. Today, Rob West offers some great year-end tips to help you do that including the following: If you haven’t maxed out contributions to your retirement accounts, do it now (or at least by April 15). For 2021, individuals can make up to $19,500 in tax-deductible 401k contributions, or $26,000 if you’re 50 or older. You can also contribute up to $6000 to a traditional or Roth IRA, or up to $7000 if you’re 50 or older. Don’t have a Roth IRA? This may be the time to make a Roth conversion, especially if your income was lower than usual in 2021. A Roth conversion requires you to pay taxes on the money when you convert, so do it while you’re potentially in a lower tax bracket. Make contributions to a Health Savings Account (HSA) or 529 Education Savings Plan. And while there are no FEDERAL deductions for contributions to a 529 education savings plan, many STATES offer them. Give to charity. It’s more difficult to get a deduction since the standard deduction was raised, but there’s a temporary provision still in place that allows you to take a $300 deduction for making an eligible cash contribution to a charity like your church. It’s a $600 deduction for joint filers. Make sure you take the deduction on your 1040. Required Minimum Distributions (RMDs). The IRS requires you to take a certain amount of money out of your pre-tax retirement accounts each year once you’re 72 or older. Failure to do so is costly. You’ll pay 50% in taxes on every dollar you fall short of your RMD. Qualified Charitable Distributions (QCD). You can bless your favorite ministry and satisfy your RMD without owing anything in taxes. Check with your retirement plan manager for specific details on how to make a QCD. Make sure you use all of the money in your Flexible Spending Account at work if you have one. Contributions were made with pre-tax dollars so they’ve already lowered your adjusted gross income. But in most cases, the money is use it or lose it so spend it on qualified items before the expiration date. If you happen to own stocks that lost value in 2021, consider what’s called tax-loss harvesting. You sell stocks that have declined in price to realize a loss. You can then use that loss to offset capital gains made on other investments this year. If you sustained more losses than gains, you can take an additional deduction of up to $3,000 against your taxable income in 2021. And if you lost more than that, you can roll those losses over into future years up to the $3,000 annual limit. Lastly, make an appointment to meet with your CPA or tax advisor to make sure you haven’t missed any deductions and to plan for lowering your tax burden next year. Don’t wait until the crush of the tax season. If you don’t have a tax advisor, go to MoneyWise.org and click Find a CKA to get a Certified Kingdom Advisor in your area. LISTENER QUESTIONS: Next, Rob answers the following listener questions: ●I’m considering refinancing my mortgage. Originally the house I live in was a second home so the rate was a little higher. I plan on staying in it no more than five years. Is it worth refinancing? ●I have a traditional IRA that was created by rolling over 401Ks from former employers. I’m not contributing to it presently. I do have another 401K at my present employer and was thinking of converting this traditional IRA to a Roth IRA. Can I contribute to a Roth while also contributing to a 401K? ●My husband and I own a one-man business. We’re trying to determine if it’s time to hire our first employee. Do you have any guidance? ●Is it better to have a will or a trust? ●Why is it so difficult to get change (physical coins) at stores these days? ●I have two children who are in Emergency Care living with me. I’ve been advised to claim them on my taxes. I’m living on Social Security. Would there be any tax benefit in my doing this? ●I have an upcoming appointment with the attorney who put my will together several years ago. I want to update the will, but don’t even know what questions to ask. Can you help? Remember, you can call in to ask your questions most days at (800) 525-7000 or email them to [email protected] Also, visit our website at MoneyWise.org where you can connect with a MoneyWise Coach, join the MoneyWise Community, and even download the free MoneyWise app. Like and Follow us on Facebook at MoneyWise Media for videos and the very latest discussion! Remember that it’s your prayerful and financial support that keeps MoneyWise on the air. Help us continue this outreach by clicking theDonate tab on our website.