4 Ways to Save Money on Your 2021 Taxes

Here are four ways to save money on your 2021 taxes.

While no one looks forward to paying taxes, it's a part of life. As you gather your tax documents and begin the filing process, you may be wondering if there are ways to save money on your taxes. If you make the right moves, you may be able to lower your tax bill. Here are four ways to save money on your 2021 taxes.

1. Contribute to your retirement account

Contributing to a retirement account, like a traditional IRA, may help you lower your tax bill by reducing your taxable income. If you have yet to max out your 2021 contributions for your IRA, making contributions now may help you lower your tax bill.

Your total income and filing status determine the deduction you can get. If you or your spouse are covered by a retirement account at work, your deduction may be limited.

The good news is you can make 2021 IRA contributions until April 15, 2022. That means you still have time to make contributions if you haven't met the maximum contribution limits.

For the tax year 2021, the contribution limits are $6,000 per year for people under 50 and $7,000 per year for people 50 or older.

2. Don't forget to deduct eligible business expenses

If you're a business owner, keep a careful record of your business expenses. You can deduct eligible costs associated with running your business -- such as business travel, subscription fees, business meals, legal fees, and marketing and advertising costs.

Another deduction to consider is the home office deduction. If you have a designated workspace in your home, you may be able to deduct expenses for the business use of your home. You must use this space regularly and exclusively for work, and it must be the principal workplace for your business.

Business deductions can lower your taxable income, which in turn may result in a lower tax bill for 2021. If you haven't carefully reviewed your business expenses, now is a good time to do so to ensure you include all possible expenses.

3. Get a tax break with the Earned Income Tax Credit

Low-income and moderate-income households can benefit from the Earned Income Tax Credit (EITC), which is available for the 2021 tax year. You'll need to meet the adjusted gross income (AGI) limits and other eligibility qualifications to use this tax credit. Income limits vary depending on your filing status, AGI, and number of dependents.

You may qualify if you meet the following criteria:

• Have worked and earned income less than $57,414
• Have investment income below $10,000 for the year 2021
• Were a U.S. citizen or resident alien all year
• Have a valid Social Security number
• Will not claim the Foreign Earned Income exclusion

As a note, additional qualifying rules are in place for military members, clergy members, and taxpayers and their relatives with disabilities. Be sure to check the 2021 maximum AGI limits based on your filing status and number of dependents.

Here's a look at the maximum credit amounts that can be claimed:

• No qualifying children: $1,502
• One qualifying child: $3,618
• Two qualifying children: $5,980
• Three or more qualifying children: $6,728

If your AGI falls within the limits and you meet the other requirements, this credit could help you lower your 2021 tax bill. One huge benefit is the EITC credit is refundable. This means it could be possible to get a tax refund even if you don't owe any tax. Here's an example: If you owe $650 and qualify for a $1,502 credit, you could get an $852 tax refund.

4. Don't forget about charitable donations

If you made charitable donations in 2021, you may be able to save on taxes. Usually, taxpayers must itemize their return to benefit from charitable tax deductions. There are special rules in place for the 2021 tax year, so taxpayers who don't itemize can also benefit.

The CARES Act included a special tax provision that allowed individual and joint filers to deduct up to $300 on their 2020 federal income returns for cash contributions made to eligible charitable organizations.

The Taxpayer Certainty and Disaster Tax Relief Act of 2020 extended this tax provision and increased the deduction for joint filters. For the tax year 2021, individual taxpayers can deduct up to $300, and married couples filing together can deduct up to $600 in cash donations made to eligible charities. Donations must have been made by Dec. 31, 2021.

If eligible, this deduction can reduce your taxable income for 2021 -- which could help to lower your federal tax bill.

Don't wait to start your tax prep

If possible, don't put off your tax preparation needs until April. Getting organized and starting the process now can help lessen your stress. Plus, you'll have time to review your tax return before you file to ensure accuracy.

If you have yet to file your 2021 tax return, our list of the best tax software can guide you toward choosing the right tax prep software for your needs.