Your tax bill for 2020 isn’t necessarily set in stone—there are a variety of steps you can take now in the new year to lower the amount of money you owe, increase the amount of money you can get back and/or avoid various tax penalties.
Here’s a quick overview of some tax tips you can put into practice in Round Rock, TX after January 1, 2021.
Put money into retirement accounts
If you didn’t already fund your retirement account for the last tax year, you can still do so before April 15, which is the deadline for traditional and Roth IRAs. This will help you lower your tax bill for this year, while allowing you to build long-term compounding savings.
To qualify for the annual IRA deduction, you must not be eligible to participate in a company retirement plan, or if you are eligible your adjusted gross income must be $65,000 or less ($104,000 for married couples filing jointly). If you are not eligible for a company plan but your spouse is, your traditional IRA contribution is still fully tax deductible so long as you have a combined gross income of less than $196,000.
Get your documents organized
While this won’t necessarily help you to cut your tax bill, there are plenty of benefits that come with staying organized. It might help you better identify some potential deductions, as you have more time to analyze your paperwork. It also ensures you will have all your documents together in one place to make it easier for you to get your tax return in on time, avoiding potential penalties.
Make an estimated tax payment
If you didn’t pay enough money to the IRS in 2020, you could potentially have a large tax bill coming due. However, you can still make an estimated tax payment early in the year to eliminate penalties you might have accrued by the fourth quarter. While you would still owe penalties for underpayments in earlier quarters, this will at least help you to reduce your potential tax bill.
Itemize
While most people take the standard deduction these days, especially after it doubled under the Tax Cuts and Jobs Act of 2017, there are still people who can benefit from itemized deductions.
After the COVID-19 pandemic, one of the biggest deductions people will take is the home office tax deduction. To qualify, you must use the space exclusively for business, but if you have a qualifying space you can write off certain expenses associated with that portion of your home.
There are other deductions you can itemize, including charitable donations, mortgage interest, business-related expenses and medical expenses.
File electronically
Electronic filing works best if you expect a refund. These returns are processed faster, meaning you can get the money you’re owed earlier. In addition, the IRS will acknowledge it received your return, and there are much lower chances of you having any errors, which means you can avoid potential penalties.
For more tax tips about filing your taxes and saving money after January 1, 2021, contact an experienced CPA in Round Rock, TX by reaching out to Perrin Anderson Rastogi Tax Services LLC.
