It is never too early to start thinking about your taxes. However, thinking about your taxes in the middle of the year will ensure that you take smart steps to reduce your tax bill throughout the year.
Donate to Charity
New rules remain in place so that you can donate up to $300 per person to charity and deduct it from your taxes, even if you take the standard deduction. This new rule is in place to encourage more individuals to make small donations to charity, which can really add up. Donating to your favorite charity can allow you to have a positive impact and can allow you to reduce your tax burden at the same time.
Keep Track of Medical Expenses
Next, you are going to want to keep track of your medical expenses. If your medical expenses that were not reimbursed by someone exceed 7.5% of your income, you can deduct them from your taxes. That means if you make $50,000, and your unreimbursed medical expenses are greater than $3,750, you can deduct them on your tax returns. This can be really helpful if you have really high medical expenses this year. Your medical expenses can be used to reduce your taxable income and thus your tax burden.
Start Contributing to Your Retirement Fund
Don't wait until the end of the year to contribute to your retirement fund. You are going to want to start contributing to your retirement fund right now. Making contributions throughout the year will allow you to get into the habit of contributing to your retirement fund monthly. Making regular contributions to your retirement fund will allow you to work your way towards the maximum amount you can contribute and deduct from your taxes throughout the year. Additionally, contributing to your retirement fund is really about setting yourself up for the future.
You can deduct contributions to a 401(k) or 403(b) or a traditional IRA on a pre-tax basis. So make sure you set up one of those accounts right now and start making contributions.
Use Your Health Savings Account
If you have a high deductible insurance plan and qualify for a Health Savings Account (HSA), ensure you use this benefit. With an HSA, the money you add to the account is not taxed. You can withdraw money from the account to pay for qualified medical expenses. Even better, the money in the account is allowed to grow, and you don't have to spend it all at the end of the year. You can continue to save up and roll over money from one year to the next with your HSA. Additionally, you can use the account when you are retired as well if you still have money in the account.
If you want to be smart about your taxes for 2021, contribute $300 to charity, keep track of your medical expenses, start contributing to a retirement account, and use your health savings account if you have one. Talk with local accounting services for additional tips on setting yourself up for a good tax experience when it comes time to file your 2021 taxes in 2022.