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WHAT YOU NEED TO KNOW: Increasing tax breaks before the end of the year

Posted at 6:50 AM, Dec 30, 2021
and last updated 2021-12-30 07:54:16-05

TULSA, Okla. — Whether you are having a good year or rebounding from recent losses, you may be able to save some money on your taxes if you make the right moves now.

Many don't give their taxes much thought until you absolutely need to, but if you consider some of these tips before Dec. 31, you may be able to save some money.

According to TurboTax:

Tip 1: You may consider deferring your income.

Whether you're employed or self-employed, you can also defer income by taking capital gains in 2022 instead of 2021.

Turbo Tax says this option would only sense to defer income if you think you will be earning the same or lower next year.

Tip 2: Take some last-minute tax deductions.

Donating to charity is a great way to get a deduction but it is important to get a receipt of how much you donated and the date of the contribution.

It will be invalid if you don't have that information.

Tip 3: Beware of Alternative Minimum Tax.

Sometimes accelerating tax deductions can cost you money… if you're already in the alternative minimum tax (AMT) or if you inadvertently trigger it.

The AMT is figured out separately from your regular tax liability and has a different set of rules. Essentially, you have to pay whichever tax bill is higher.

Tip 4: Sell losing investments to offset capital gains.

By selling losing stock and mutual funds, you can then use those losses to offset any taxable gains over the past year.

Tip 5: Contribute as much as you can to your retirement.

There may be no better way to save than tax-deferred retirement accounts. Employers may often match that number if it is a company-sponsored 401K plan.

However, these changes must be made by Friday, Dec. 31.

Tip 6: Avoid the kiddie tax.

Congress created the "kiddie tax" and its rules to prevent families from shifting the tax bill from investments that Mom and Dad made to their children.

Experts say to be careful if you plan to give a child stock to sell to pay college expenses. If the gain is too large, you could end up paying taxes at the same rates as you do.

Tip 7: Check IRA deductions.

People have to start making regular minimum distributions from their traditional IRA by April 1 after the year they turn age 72.

Minimum distributions were suspended in 2020, but they are coming back again in 2021.

Tip 8: Watch your flexible spending accounts.

Flexible spending accounts, also known as flex plans, are fringe benefits that many companies offer that can let employees steer part of their pay into a special account which can then be tapped to pay child care or medical bills.

The advantage is that money that goes into the account avoids both income and Social Security taxes. But you have to decide at the beginning of the year how much you're willing to contribute to the plan or you forfeit the excess.

As always, experts say to try and make these changes weeks before the end of the year to give yourself and your employer ample time to make these changes.

To learn more about these 8 tips, head to TurboTax's website.

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