One of the biggest stresses experienced by businesses and individuals is nothing but tax return preparation and filing. The reason it is so stressful is due to the fact that taxes are complicated to handle, and with the growing number of tax reforms, this complexity is simply increasing. One needs to have accounting skills and expertise in order to prepare and file taxes accurately, and more importantly, to leverage write-offs. In other cases, it is best to hire tax professionals. Irrespective of whether you are managing your taxes on your own or through a professional, you must work on the following to ensure a stress-free year ahead.
9 Tips to Make 2021 Your Best Tax Year Ever
- Set a Goal
Firstly, set a goal that should clearly explain your accomplishment plan for the next year in terms of your finances. This can be your urge to earn extra money, learning to budget your finances, and more. One recommendation while setting a goal is to set a lofty one, primarily due to the following two reasons:
- A difficult to accomplish goal motivates you to put in additional effort.
- Even if you are unable to accomplish the goal, you will end up at a point that would be much higher than that of a lower goal.
- Analyze Income
There are a lot of accountants who advise pushing your income to an afterward year. When deciding to do this, there exist several factors for consideration. Firstly, you must analyze, is your income too low that you may end up losing out on deductions? There are a lot of personal deductions that do not pass on to the following year. So, instead of taking deductions presently, you must boost your income to ensure complete deductions’ use. Also, you must take into consideration the tax rates for the next year since there is always a probability of increasing the tax rates in 2021.
- Work on Your Refunds
There are ways to make more money as compared to your traditional refund:
- Try adjusting your entire tax withholdings with your company for getting your refund to divide among your paychecks throughout the year.
- Into an online big-interest-earning savings account, try to set up a direct deposit or an automatic transfer for the additional amount you carry on your paycheck.
- Now simply watch the money grow, which would otherwise have got trapped with the IRS.
So, post one year, the time among tax refunds, you will have your normal refund and also the interest earned on the same.
- Leverage Tax Law Favors
There are various tax laws that offer great incentives to investors and business owners, and it is not that difficult to leverage opportunities that come your way. If you are a business owner, commodity provider, or real estate owner, you become eligible for tax incentives since you are adding to the economic growth. As compared to consumers who owe around 40% in taxes, 20% is all that the producers have to pay as per their activity level.
- Take Benefit from Your Retirement Accounts
Do you have a retirement plan that is employer-sponsored or a 401(k) plan? If yes, you can easily set aside around $ 19,500 of the compensation amount in the 2020 account ($ 26,000 in case you are 50 or above). When you increase your 401(k) contributions, it will not only bring down your tax bill in 2021 but pave the way for a much secure retirement.
- Use your HSA to the Fullest
If you have enrolled yourself in a big-deductible plan for health insurance, you become eligible for contributing to an HSA. For the year 2021, this is known to be a plan with an individual coverage deductible at a minimum of $ 1,400 or $ 2,800 for family health coverage. In case you qualify, you may contribute around $ 7,200 if you have enrolled yourself in a family health coverage plan or $ 3,600 to your health savings account in 2021 for single coverage.
- Identify Opportunities
With both political and economic uncertainty, we may witness another financial downturn in the coming year of 2021. But always remember that such times always present you with the opportunities to succeed. However, if you fail to plan for the same, you will simply have remnants at the end. With planned income tax for reducing your taxes, you get the opportunity to plan in advance the savings for investing during market downtime, especially when investments are cheaper.
- Go Green
If you have your own house and install equipment for alternative energy like solar hot water heaters, wind turbines, or solar panels, you become eligible for claiming a tax credit as a part of your self-incurred cost. Although this credit value is coming down, it can still help you with respect to 22% of your 2021 spending ($ 2,200 for each $ 10,000 of eligible spending). So, make sure you benefit from the same before the credit becomes nil for residential solar energy systems.
- Eliminate Unnecessary Stuff
Anything that is of hardly any value in your life must be cut out. This can include anything such as spending, debt, relationships, unfit clothing, and more. Basically, remove everything that is holding you back in trying to achieve anything good because somewhere or the other, all such unwanted things affect your finances and disrupt your financial goals and planning.
Taxes take a lot out of individuals and business owners, but it need not be that way. With the help of the aforesaid strategies, one can use taxes to his advantage and have a sigh of relief in the coming year. Yes, such detailing is not possible for every person with limited accounting knowledge, but then you have such posts to help you out, and if you do not have time for the same as well, you can opt for professional tax help. The reason being such individuals have years of experience and also keep them updated with the latest tax changes and happenings in the accounting industry. So, all the best for your taxes!