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Now is the time to take advantage of year-end moves to cut your tax bill before it is too late.
Whether you make a charitable donation, fund your retirement account or review helpful tax deductions, taking these small steps now can make a big difference at tax time. The 2021 tax filing deadline is April 15, 2022.
The following are five tax moves to make before the clock strikes midnight on New Year’s Eve.
1. Check Your Paycheck Tax Withholdings
It’s important to check your tax withholdings, especially if you had major employment or life changes, such as an increase to your income, a change in your marital status, arrival of a new child or purchase of a home. Checking your tax withholdings can help you see if you have the right amount of taxes taken out of your paycheck.
If you do not withhold enough taxes, you may owe money when you file your income taxes and face an unexpected bill. On the other hand, if you withhold too much—and you receive a large tax return—you may prefer to adjust your taxes to receive more money in each paycheck.
You can use the IRS tax withholding estimator, which is a self-service tool, to figure out if you withheld the right amount from your pay. You will need your most recent pay statement and income tax return to get started.
2. Give to Your Favorite Charity
Giving to your favorite charity before the end of the year not only allows you to help someone in need but can also help you save on taxes.
Generally, you need to itemize your deductions to claim charitable donations. However, with the passage of the CARES Act, a coronavirus relief bill signed into law in March 2020, you can claim up to $300 for charitable donations (up to $600 for married filers) even if you opt for the standard deduction for 2021.
A standard deduction is a flat amount by which the IRS allows you to reduce your tax bill based on your filing status.
As a result of the Tax Cuts and Jobs Act (TCJA) of 2018, which nearly doubled the standard deduction amounts, more taxpayers are using the standard deduction. According to the Tax Foundation, only 13.7% of taxpayers itemized their deductions for tax year 2019, compared to 31.1% under the previous TCJA tax law.
For the 2021 tax year (filed in 2022), the standard deduction amounts are:
- $12,550 for single and married filing separate taxpayers
- $18,800 for head of household taxpayers
- $25,100 for married filing jointly or …….