You can lower your IRS burden for the year if you take these key steps now.
- It’s never a bad time to think about lowering your taxes.
- These moves could leave you owing the IRS less in 2021.
1. Sell off underperforming investments
You may have some stocks sitting in your portfolio that aren’t performing as well as you had expected them to. If you’re thinking of dumping those stocks to free up space in your portfolio, now’s a good time to act. The sooner you take those losses, the easier it’ll be to plan out other strategic tax moves for the year.
Say there’s a stock in your portfolio that’s gained value nicely, but you’re worried it might soon lose steam. If you sell an underperforming stock and lock in, say, a $5,000 loss, you might then feel comfortable selling your other stock for a $5,000 gain, since your loss can offset it.
2. Increase your IRA or 401(k) savings rate
Putting money into a retirement savings plan like an IRA or 401(k) can benefit you in a few ways. First, the more cash you sock away, the more retirement wealth you have the potential to grow. But also, funding a traditional IRA or 401(k) plan means shielding more of your income from the IRS.
Right now, IRAs max out at $6,000 for savers under 50 and $7,000 for those 50 and over. Meanwhile, 401(k) plans have much higher contribution limits — $19,500 for savers under 50 and $26,000 for those 50 and over.
If you haven’t come close to maxing out your IRA or 401(k) for 2021, start making some budget changes to eke out extra cash now. If you wait until the end of the year, you might struggle to free up that money, especially if you have big plans for the holidays.
3. Max out your HSA
If you’re eligible for a health savings account (HSA), it pays to pump as much money as you can into one this year. Not only will that result in a higher tax break, but you’ll then have the option to invest that money once it’s in your account so it can potentially grow into a larger sum in time.
This year, HSA contributions max out at $3,600 if you’re saving on your own behalf and under 55. If you’re under 55 and saving on behalf of a family, you can contribute up to $7,200. And if you’re 55 or older, you can add another $1,000 to whichever limits applies to you.
Set yourself up for a lower tax bill
You’d probably like to give the IRS as small a chunk of your earnings as possible. And that’s why it’s important to focus on these tax moves at this stage of the year. You still have time to sell investments strategically and add more money to a tax-advantaged savings plan, so don’t pass up that opportunity.
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