With all that’s going on in the world, it’s easy to forget that it’s tax time again. This year, the deadline for filing your tax forms and making any payments due is April 18, 2022 (April 19 in Massachusetts and Maine). This is also the deadline for filing for an extension, and remember, you still need to pay your taxes by that date, even if you do file for an extension. If you are self-employed or required to make estimated tax payments, the due date is April 15, 2022.
As you get your tax filings in order for 2021, keep in mind that it’s not too late to take advantage of some tax advantaged savings strategies. Listed below are information and tips that you may find helpful to consider.
Take advantage of retirement savings opportunities
Planning for retirement is a key concern for most of us. It’s important to take full advantage of the opportunity to maximize your retirement contributions. There are a couple different ways in which one can save towards retirement, either via a Traditional IRA or a Roth IRA. Depending on your particular financial situation, either option has its benefits. A Traditional IRA allows one to contribute pre-tax dollars to an IRA, thus lowering taxable income dollar for dollar for the year. Once in retirement, you pay taxes when said funds are withdrawn from the Traditional IRA for income in your retirement years. With a Roth IRA, you contribute after-tax dollars which grow completely tax-free for the remainder of your life.
As you can see, the Traditional IRA as well as the Roth IRA offer differing approaches to tax savings for your retirement years. There are also certain income limitations for whether or not you’re able to fund a Roth IRA, as well as limitations on whether or not you’re able to deduct your Traditional IRA contribution. With this in mind, your financial advisor or accountant can help advise on what best suits your particular circumstances, as well as your retirement planning goals.
While it’s too late for most to make 401(k) contributions, the good news is that you still have until April 15th of 2022 to contribute to your traditional or Roth IRA. For the 2021 tax year, traditional and Roth IRA contribution limits are $6,000 for individuals under 50 and $7,000 for those 50 or older.
Health accounts
Health Savings Accounts (HSAs) are another great way to save on a tax-advantaged basis, and the money in your HSA never “expires.” The 2021 annual contribution for HSAs for a family has increased by $100 from $7,100 in 2020 to $7,200 in 2021 ($3,600 for individual). If you are 55 or older, there is an additional $1,000 catch-up contribution you can make. Similar to IRAs, you have until April 15, 2022 to make contributions for 2021 tax filing purposes. Health Savings accounts combine the tax benefits of Traditional IRAs as well as Roth IRAs, as the contributions are tax-deductible, and withdrawals for qualifying medical related expenses are tax free.
One final note. For those expecting a refund this year, be patient. Recently, U.S. Treasury officials conceded that the IRS will face “enormous challenges” this filing season, as the agency is backlogged and understaffed. Also, getting your tax questions answered may be a greater challenge than usual. The National Taxpayer Advocate group said that in 2021 just 3% of calls were answered by the IRS’ 1040 support line for individual tax returns.
Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, Raymond James does not provide advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
