As the end of the year approaches, it’s a good time to start getting organized for tax time. Here are some tips to make your year-end tax planning for 2021 easier.
Check Your Status
If you are a W2 employee, check your paycheck withholdings. Have you had enough money withheld? Have you had too much withheld? If you claim too few allowances on your W-4, you may end up with a refund at tax time. If you claim too many allowances, you may have taxes due.
If you’re self-employed, have you paid enough in estimated taxes? Now is a great time to catch up on your bookkeeping, check your projected revenue and profit for the year, and check your estimated tax payments to make sure you aren’t surprised with how much you owe for the fourth quarter.
Gather Your Documents
While you might need to wait until the end of January to receive W2’s, 1099’s and other tax documents, now is a good time to gather up what documents you can, especially tax-deductible receipts, HUD-1 statements from the purchase or sale of a property or other tax-related documents that you have. Don’t leave them in a box until tax time! Scan them and organize them on your computer or start sending them to your tax preparer.
If you own a business, whether you run on cash basis or accrual basis, the end of the year is a good time to get your books in order. Go through your Accounts Receivable, Accounts Payable, and Inventory, and make sure all of your numbers add up.
Plan for True Up
If you didn’t receive a stimulus payment or a child tax credit that you should have received, you will have the chance to request those amounts on your 2021 tax return. Make sure that you have a note of this in your records so you don’t forget to request it when you file.
Make Business Investments
If you’re planning to invest in your business and write off the expense, it might be a good idea to make those purchases by the end of the year to get the tax credit on your 2021 return. For example, if you are planning to buy equipment for your business, any equipment under $2,500 can be written off as a tax-deductible expense.
Tax Loss Harvesting
If you have capital gains in your brokerage accounts from the sale of stock during the year, you may want to consider selling some stock that you’re holding at a loss to offset those capital gains. For example, if you sold stock or cryptocurrency and you made a profit, you could sell some stock or cryptocurrency that you’ve been losing money on to net against those gains and reduce your capital gains tax liability for this year.
Make Charitable Donations
The end of the year is a great time to make charitable donations. Your donations will help non-profits through the holiday season, and most often they are also tax-deductible. Make sure that you donate to registered 501(c)(3) organizations, and make sure you get a receipt.
Consider Deferring Income
If you are scheduled to receive a large payment at the end of the year, consider how it will affect your taxes due. Depending on your situation, you might want to receive the payment at the beginning of next year instead.
Professional Tax Planning Services
If you need professional Tax Planning services, BNC Tax can help! Visit our Appointment Calendar to schedule a free or paid consultation, depending on your needs. Visit our blog for more tax tips and updates.