THE end of the 2021 tax year is approaching – and it’s worth taking a few steps so you don’t miss out on cash worth thousands of dollars.
The tax year runs from January 1 until December 31 in the US, and taxpayers then typically have until April to file returns.
However, the deadline for 2020 tax returns was extended from April 15 until May 17 in 2021 following the coronavirus crisis.
Meanwhile, those who requested an extension have until this Friday, October 15.
Below we round up what you need to do before the end of the 2021 tax year on December 31 to avoid missing out on cash or to avoid penalties.
Households who make qualified energy-saving home improvements by the end of 2021 can claim tax credits of the costs until December 31.
You can get either get 10% of costs worth up to $500, or a specific amount between $50 and $300.
Home improvements that qualify include installation of air source heat pumps, central air conditioning, water heaters and more.
You can find extra information on the Energystar.gov website.
As some of the improvements can work out expensive, make sure not to go ahead with them for the credits only.
Some taxpayers who aren’t covered by other health insurance or enrolled in Medicare may want to open a health savings account (HSA).
This is because the funds contributed to an account aren’t subject to federal income tax, as long as you use them for qualified medical expenses.
These include deductibles, over-the-counter drugs, insurance premiums or medical expenses during a time of unemployment.
In other words, if you don’t already have a health savings account, it could be worth setting one up before the end of the tax year.
Parents and grandparents may want to consider contributing to their kids’ and grandkids’ college expenses in a 529 plan.
These tax-advantaged accounts are sponsored by states, state agencies or educational institutions.
There are two types of 529 plans: prepaid tuition plans and education savings plans.
The latter lets savers open an investment account on behalf of the beneficiary’s future higher education expenses.
Withdrawing the cash to pay for college is then tax-free.
Direct payments to an institution for educational or medical purposes are also not subject to gift tax limitations.
In 2021, individuals can contribute up to $15,000 per beneficiary tax-free.
Some retirement saving accounts have set limits on how much you can contribute each year, so it’s worth making the most of them.
For example, most workers with a 401k account can make contributions of up to $19,500 until December 31 of 2021.
However, workers who are older than 50 years old are eligible for an extra catch-up contribution… Brinkwire Brief News.