Consider conducting a final tax planning review to see if you can take actions to minimize your tax surprises this year. Here are some ideas to get you started.
- Review your income. Begin by determining how your income this year will compare to last year. Since tax rates are the same, this is a good initial indicator of your potential tax obligation. However, if your income is rising, more of your income could be subject to a higher tax rate. This higher income could also trigger phaseouts that will prevent you from taking advantage of certain deductions or tax credits that were previously available.
- Examine life changes. Review any key events over the past year that may have potential tax implications. Here are some common examples:
- Purchasing or selling a home
- Refinancing or adding a new mortgage
- Getting married or divorced
- Incurring large medical expenses
- Changing jobs
- Welcoming a baby
- Identify what tax changes may impact you. Two of the major changes this year include the lowering of the child tax credit and the lowering of dependent care credit for working couples. This year also marks the first year in the last two with no pandemic related payments.
- Manage your retirement. One of the best ways to reduce your taxable income is to use tax beneficial retirement programs. For this reason, now is a good time to review your retirement account funding options. If you are not taking full advantage of the accounts available to you, there is still time to make adjustments.
- Look into credits. There are a variety of credits available to most taxpayers. Spend some time reviewing the most common ones to ensure your tax plan takes advantage of them. Here are some credits worth reviewing:
- Child Tax Credit
- Earned Income Tax Credit
- Premium Tax Credit
- Adoption Credit
- Elderly and Disabled Credit
- Educational Credits (Lifetime Learning Credit and American Opportunity Tax Credit)
- Avoid surprises. The goal at this point is to avoid any unwanted surprises when you file your tax return. It’s also better to identify the need for a review now versus when your out of time at the end of the year.
Remember, you are not required to be a tax expert. Use these tips to determine if a review of your situation is warranted.