It's not too late to change everything: how taxes can be influenced in December for the whole of 2021

The last month of the year means a lot of things - holidays, parties, games and much more. But this is also an opportunity to do tax planning. The publication spoke about what you can do now for yourself in the future AZCentral.

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By now, you have a good idea of ​​how you will end 2021 in terms of income earned and deductions available. Here are some general year-end tax tips that apply to federal returns.

Analyze your expenses

One of the key resolutions at the end of the year is to review your expenses to see if you can itemize them. Otherwise, you'll need to take the standard deduction, which became much more common after tax reform in 2017. About 90% of taxpayers choose this method. Common itemized deductions include property taxes, mortgage interest, state income taxes, charitable donations, and medical expenses.

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For 2021, the standard deduction is $ 12 for individual taxpayers and $ 550 for couples filing a joint return. If your refundable expenses exceed these thresholds, you probably want to detail them.

Determine your tax category

Another aspect that can help with year-end planning is determining your income level. Think of categories as buckets of water. As your income grows, you fill out the first one that applies the lowest tax rate, and then move on to categories with successively higher tax rates.

The lowest rate is 10% for individual taxpayers earning $9 or less, or $950 or less for married couples filing a joint return. Rates reach 19% for individual taxpayers with income above $900 and for married couples above $37. Intermediate rates are 523%, 600%, 628%, 300% and 12%.

Analyzing rates can help determine if you want to delay or accelerate your income generation. For example, if taking on a higher paying job in December might move you out of the 12% group into the 22% group, it might be worth waiting until January.

With tax rates likely to rise in the future, it would be wise to make the most of the lower bound.

Consider optional costs

Many people don't have much wiggle room at the end of the year when it comes to income. Chances are, you will not start a new job in December, for example, although you may have the option to defer the payment of a bonus or other income until January.

There are often more opportunities to increase the deductible expenses. You probably won't be able to significantly change your mortgage interest, but there are other options, such as through charitable donations.

The general rule of thumb is that you can deduct donations to qualified charities. The amounts you donate, plus other deductible expenses, may be enough to generate a large deduction due to granularity.

Special donation rules may apply

A special note for almost all taxpayers is that a special deduction is possible for donations of up to $ 300 per person ($ 600 for married couples), without the need for breakdowns.

For seniors who do not need to live on all their retirement money, a qualified charity giveaway or QCD may come in handy. If you are at least 70,5 years old, you can take advantage of this provision, which allows you to directly transfer up to $ 100 from an IRA to one or more charities.

You will not receive the deduction that normally applies, but the money is not recognized as taxable income, which can help meet minimum tier requirements and avoid taxes on some Social Security benefits and possibly higher Medicare fees.

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You may also want to start a fund, especially if your income has jumped and you need to write off at the end of the year. These funds allow you to donate cash or other assets such as securities, claim a deduction now, and then spend some time deciding which charities to send money to.

Medical deductions

The tax reform was supposed to raise the floor for medical deductions from 7,5% to 10%, which meant that people could only write off health care expenses that exceeded 10% of their income. But Congress temporarily lowered the threshold to 7,5% and then made it permanent at that level, making it easier to deduct medical expenses.

Many medical expenses are deductible, including costs for doctors, hospital costs, prescription drugs, some travel costs, some insurance premiums, and more.

It's also worth thinking about "bundling," which is skipping certain deductible expenses for one year (and taking the standard deduction) and then doubling the next to fall within the itemized deduction range.

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Capital gain

Many investors sit on taxable stock market accounts or on income from other assets. It is often wise to postpone a sale to defer paying taxes on profits. But if your taxable income is modest, you can make a profit and pay it out this year. Especially if you are eligible for a long-term capital gains rate of 15% or even 0%.

Long-term rates apply to assets held for more than one year; otherwise, profits are taxed as ordinary income at rates that are generally higher. A 0% rate may apply if your taxable income for the year is less than $ 80 for married couples or $ 800 for individual taxpayers.

Conversely, it would be wise to be aware of the loss. Typically, if your losses exceed your annual earnings, you can deduct up to $ 3000 from regular income. This “loss collection” is best done at the end of the year when you have a better understanding of your tax situation.

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