2021 is coming to an end, but there are still 16 more days to make some conscious financial choices that could benefit you in the long run. Whether donating cash or items or creating strategic savings, there are many ways you can utilize this time to greatly benefit your 2021 Tax Returns. The greater-Princeton area has many resources to help you and organizations that could benefit from your choices.
Making a donation to your favorite charity during the holidays is always a wonderful thing to do. There can also be a benefit to you when tax time comes around. If you’re a lover of the arts, local nonprofits like American Repertory Ballet, Greater Princeton Youth Orchestra or Princeton Summer Theater would be delighted to be the beneficiaries of your donation. Some people prefer to sprinkle a little money around to a variety of charities, or you can write one larger check to Howell Living History Farm for a new educational program, for example. If you itemize your deductions on your tax return, you will have an added benefit from those cash contributions in the form of a tax deduction. If you are close to itemizing, making a more significant contribution may also “bump” you up above the standard deduction ($25,100 for those married filing joint in 2021). No worries, though, if you do not have enough charitable contributions to itemize, the allowable cash donation that can be claimed when taking the standard deduction has jumped to $600 for 2021 (up from the $300 allowed in 2020).
DONATING HOUSEHOLD ITEMS
Cleaning out the closets and making a non-cash contribution of clothing and household items can also provide some tax savings. Homefront, Rescue Mission of Trenton and Jewish Family & Children’s Services are a few of the local organizations that accept gently used clothing. If you’re cleaning out your closets and have a highly priced garment, just be advised that non-cash contributions totaling more than $500 need to be reported on Form 8283. Some nonprofits, like Goodwill, accept furniture donations and your old bike could be passed along to give someone else a ride through The Boys & Girls Clubs of Mercer County Bike Exchange. Take pictures and make a list of the non-cash donations to document what you have donated.
Have appreciated stock that would yield a significant capital gain? You can donate the stock directly to your favorite charity and take a charitable deduction for the fair market value of the stock when gifted. This gift can help curb hunger in our community, as Trenton Area Soup Kitchen accepts donations of stocks or mutual funds. Or donate them to Learning Ally to help them record more audiobooks for the blind and dyslexic. Not sure what charity you would like to donate to? You can open a Donor Advised Fund, contribute the appreciated stock to the fund and reap the benefits of the charitable donation in 2021. You can then make the donations over the coming weeks, months, years but still get the tax deduction in 2021. Consult your tax advisor for more information.
RETIREMENT SAVINGS OPTIONS
It may be a wise time to consider a contribution to a Traditional IRA, Solo 401K or SEP IRA as a way to increase your retirement accounts. If you participate in your employer’s 401k plan, you can make a nondeductible IRA contribution by April 15, 2022. While you will not get a tax deduction for the contribution, you may be able to perform a Backdoor Roth Conversion which allows the taxpayer to move pre-tax nondeductible traditional IRA contributions into a post-tax Roth account. The amount that you can contribute to a Backdoor Roth is limited on a yearly basis and may be affected by other IRA accounts you currently hold. While you have until April 15th of 2022 to do this, it may be something you want to consider now. Please consult your tax advisor for more information. AARP Foundation Tax-Aide and United Way of Mercer County (through VITA-Volunteer Income Tax Assistance) will soon have free tax services available, for those who qualify, for 2022 tax filing.
If you are a self-employed individual, Traditional IRAs, Solo 401Ks and SEP IRAs are all thoughtful ways to save money for retirement and realize the tax benefits of the retirement contributions now. Though you love Princeton now, once retired, you may find yourself yearning for a home in a South Carolina retirement community instead. Consult your tax advisor to see if any of these ideas may factor into your tax model.
TIE UP YOUR LOOSE ENDS
The 2021 4th quarter estimated payment is not due until January 18, 2022, but now is the time to consider whether or not you are safe harbored from penalties and interest for the 2021 filing season. Having enough tax paid by April 15th can help eliminate the additional burden of the penalties and interest that could be assessed. The safe harbor calculation is based on 110% of your prior year tax due or 90% of your current year’s tax liability.
The holiday spirit puts us all in giving moods, and there are many ways you can choose to do so. Though most of your giving may be done out of the goodness of your heart, as you close out 2021, why not also utilize some of this advice and let your charitable ways benefit you a little bit, too!
The Team at Augenblick & Company PC has contributed to this article. Augenblick & Co, which provides a full range of tax preparation and accounting services to individuals and businesses, is located in New Hope, Pennsylvania and has been servicing clients for over 45 years. To learn more about Augenblick & Co, please visit their website at augenblickpc.com.