First, consider contributing to a Traditional IRA. Doing so may help lower your tax bill by reducing your taxable income. Your total income and filing status determine the deduction you can claim on your taxes. If you or your spouse are covered by a retirement account at work, your deduction may be limited.
- The good news is you can make 2021 IRA contributions until April 18, 2022. That means you still have time to make contributions if you haven’t met the maximum contribution limits. For the tax year 2021, the contribution limits are $6,000 per year for people under 50 and $7,000 per year for people 50 or older.
- Second, if you’re self-employed look into a SEP IRA. As a small business owner, you may not only be eligible for a traditional or ROTH IRA but a Simplified Employee Pension IRA (also known as a SEP IRA), if you meet certain requirements.
Like a traditional IRA, contributions made to SEP IRAs are made with pre-tax dollars. Therefore, contributions reduce your taxable income up front, and you won’t pay taxes until you withdraw the money. For 2021, you can contribute up to 20% of your net income from self-employment or $58,000, whichever is less. You have until the due date of your return (including any extensions) to make contributions and get a tax deduction for 2021.
- Lastly, if you made charitable donations in 2021, you may be able to save on taxes. Usually, taxpayers must itemize their return to benefit from charitable tax deductions. There are special rules in place for the 2021 tax year, so taxpayers who don’t itemize can also benefit. Nearly nine in 10 taxpayers now take the standard deduction and could potentially qualify to claim a limited deduction for cash contributions.
For the tax year 2021, individual taxpayers can deduct up to $300, and married couples filing together can deduct up to $600 in cash donations made to eligible charities. Donations must have been made by Dec. 31, 2021.
Information in this material is for general information only and not intended as investment, tax or legal advice. Please consult the appropriate professionals for specific information regarding your individual situation prior to making any financial decision.
Securities offered through LPL Financial, Member FINRA/SIPC
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