10 Last-Minute Tax Tips Before the Year Ends

It seems like you just finished doing your 2020 taxes, and in a few short weeks, you'll have to start working on them all over again. You may want to put off thinking about taxes until after the holidays, but that could be a mistake. These last few weeks of 2021 are your last chance to make some key tax-saving moves. Here are 10 things you may want to consider doing before we ring in the new year.

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Contributing to your retirement accounts now could help you in several ways. You'll be setting aside money for your future, and if you use tax-deferred accounts, you'll reduce your taxable income for this year. You may even qualify for the Saver's Credit, which could shave even more off your tax bill.

You have until the tax deadline to make IRA contributions for 2021, but you only have until the end of the year to make 401(k) contributions. If you can afford to do so, think about increasing your contributions during these last few weeks.

Now is prime time for charitable giving, and you're not just helping others when you do so. You can also claim a charitable donation tax deduction. This will reduce your taxable income by the value of your donation. Individuals can claim a charitable contribution deduction for up to $300 in 2021, while married couples can claim a deduction for up to $600 without itemizing.

Make sure you get a receipt or keep documentation showing the amount of your donation. And verify that you're contributing to a tax-exempt organization or your donation won't qualify for a tax deduction.

Flexible spending account (FSA) funds don't roll over from one year to the next like health savings account (HSA) funds do. If you don't spend all the money you have in your account by the end of the year, you lose it. You could use it on actual medical bills, but if there's nothing in particular you need, you can stock your medicine cabinet with over-the-counter medications, bandages, or any other health-related items you may need in the future.

HSAs are designed to help people pay for their medical expenses, but they're quickly becoming popular as another place to stash retirement savings. Money you contribute to an HSA reduces your taxable income, just like your contributions to tax-deferred retirement accounts. Plus, if you use the money for medical expenses, you never pay taxes on it.

To qualify for an HSA, you need a health insurance plan with a deductible of $1,400 or more for an individual or $2,800 or more for a family. Individuals may contribute up to $3,600 to an HSA in 2021, while families may contribute up to $7,200.

ALSO READ: HSA vs. FSA: Key Differences

Roth savings give you tax-free withdrawals in retirement, so people love to have them. Some people choose to convert their tax-deferred savings into Roth savings over time. This is known, unsurprisingly, as a Roth IRA conversion. Basically, you're electing to change some of your savings from tax-deferred to Roth, but to do that, you have to pay taxes on the amount you're converting this year.

The end of the year is a popular time for doing Roth IRA conversions because you probably have a pretty clear idea of where you'll fall in your tax bracket for the year. It's usually wise to convert as much as you can without pushing yourself into the next tax bracket. If you plan to convert a large sum, do so over several years.

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Seniors are required to take required minimum distributions (RMDs) from all retirement accounts except Roth IRAs beginning in the year they turn 70 1/2, if they hit this age before 2020, or in the year they turn 72, if they reach this age in 2020 or later. How much you have to withdraw depends on your account balance and your age.

You don't want to skip this because then you could face a 50% penalty tax on the amount you should have withdrawn. So now's a great time to review how much you've already taken out of your retirement accounts this year and withdraw more if need be.

You may qualify for a tax deduction if you pay for medical bills that cost more than 7.5% of your adjusted gross income (AGI) in 2021. So if you have any outstanding medical bills that fit this description and you can afford to pay them off, now might be the time to do so.

Paying for higher education could also be smart. You may qualify for some education-related tax credits, like the Lifetime Learning Credit, which could slash your tax bill. Just make sure you research the criteria for the tax deductions and credits you're considering so you know if you qualify.

ALSO READ: 1 in 3 U.S. Adults Has Medical Debt. Here's How to Avoid It

A lot of mutual funds pay out capital gains to their shareholders around this time. You might think that'd be a great reason to buy now, but if you do, the government is going to tax you on that capital gain you receive. You may prefer to hold off until the start of the year or until you're sure the fund has already paid out its capital gains for 2021 before buying.

If you've lost money on some of your investments this year and you'd like to sell them, now is the time to do so. You can claim capital losses to help offset some of the capital gains you've earned on your other investments. This is known as tax loss harvesting, and it prevents your tax bill from going up due to your investment earnings.

You should note that you can't sell an investment only to turn around and buy it again a few weeks later. This is known as a wash sale, and you'll get in trouble with the government for doing it. So you should only sell a stock if you're serious about getting rid of it.

It'll be a little bit before you receive your W-2s, but it doesn't hurt to start gathering your other tax paperwork together now. This is especially important for those who plan to claim self-employment tax deductions, charitable donation deductions, or any other kind of deduction or credit that requires documentation. Put all of this in an envelope and keep it somewhere safe until you're ready to file your taxes.

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Go back through the tips discussed here and do the ones that make sense for you as soon as possible. You might be able to shave some money off your tax bill or at least avoid some costly mistakes. When you get down to actually filing your tax return, you'll be glad you were thinking ahead.

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