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Tax tips that could save you money this year

Decide whether itemizing is still for you: The 2021 standard deduction amounts are as follows:



Max out on your retirement plan: Think about increasing your contributions to your 401{k), IRA, or other retirement plans to reach the maximum contribution amount. Not only does this offer the possibility of increasing your retirement savings, but it will also potentially lower your taxable income. To apply to the 2021 tax year, taxpayers generally have until December 31, 2021, to contribute to a 401{k) plan and until April 18, 2022, to contribute to an IRA.


Consider converting your traditional IRA to a Roth IRA: Although there are income limits for contributing to a Roth IRA, anyone can convert all or a portion of their assets in a traditional IRA (or other eligible retirement plans) to a Roth IRA.


Use stock losses to offset capital gains: Now may be a good time to consider selling certain underperforming investments in order to generate a capital loss before the end of the year, which could help offset capital gains realized when selling better-performing stocks. In addition, you may generally deduct up to $3,000 {$1,500 if married and filing separately) of capital losses in excess of capital gains per year from your ordinary income. If your net capital losses exceed the yearly limit, you can carry over the unused losses to the following tax year.


Look for tax-aware investing strategies: Placing a portion of your income into investments not generally subject to federal income taxes, such as tax-free municipal bonds, probably will not affect your 2021 tax situation, but it could potentially ease your tax burden down the road when these investments start generating income.


Fund a 529 education savings plan: By putting money into a 529 education savings plan account, you can give a tax-free gift to a beneficiary of any age while simultaneously supporting their education. Generally, you can make a gift of up to $15,000 per beneficiary annually {$30,000 from a married couple electing to split gifts) without having to fill out a federal gift tax return. While this is not a federal tax deduction in the current year, it can help pass your income to your beneficiaries and grow tax free if used for qualified education expenses. Check with your financial advisor for IL 529 plans that may be tax free at the state level. Also, keep in mind that 529 plans are most effective when the investments have years to grow.


Cover health care costs efficiently: Both health savings accounts {HSAs) and flexible spending accounts {FSAs) could allow you to make pre-tax contributions for qualified medical expenses that your insurance does not cover. However, HSA eligibility requires participants to purchase high-deductible health insurance. Also, generally, funds contributed to an FSA must be spent during the same plan year as their initial contribution.

Give to your favorite charity – or your family: Charitable gifts such as cash and appreciated stock are still tax-deductible if you itemize (not if you take the standard deduction). While gifts to family members are not tax-deductible, they still are an effective form of estate tax planning. Taxpayers can give as many family members as they like up to $15,000 each per year ($30,000 from a married couple) without needing to file a gift tax return with the IRS. Furthermore, gifts are not considered taxable income for the recipient.