Trim next April's tax bill with these year-end moves

Consider these strategies that may reduce your tax liability while building up your retirement funds and helping you do good for others.

Max out retirement contributions. If you're not at the contribution limit in your workplace retirement plan, increase your contributions between now and the end of the year. It's good for your retirement and lowers your taxable income.

You can contribute up to $19,500 in 2021 to a 457, 401, or 403(b) plan, and if you're age 50 or older, you can put an extra $6,500 into these plans. Some 457 and 403(b) plans offer additional ways to boost your savings. (See How to Close Your Retirement Savings Gap.) You have until April 15, 2022, to contribute to an IRA for 2021.

Make a charitable donation. Write a check or give appreciated securities to your favorite charity and get a tax deduction. Usually, you must file an itemized return to deduct donations, but cash gifts of up to $300 for single filers and up to $600 for joint filers in 2021 are deductible even for non-itemizers.

Claim medical expenses. You can deduct unreimbursed medical expenses that exceed 7.5% of your adjusted gross income if you itemize. That may seem like a high threshold, but the list of qualified expenses is extensive, from doctor visits and prescription drugs to hearing aids and premiums for health and long-term care insurance. (See IRS Publication 502.)

If your expenses are just under the deduction threshold, you still have time for a trip to the dentist or an annual physical to put you over the top.

Remember RMDs. RMDs were suspended in 2020, but they're back for 2021. If you're among those investors who must take withdrawals from traditional IRAs and tax-sheltered retirement accounts, remember to do so by year end. Failing to take your RMD will trigger a 50% penalty on the amount you should have withdrawn. Learn more about RMDs.

Be aware of EITC changes. This isn't a year-end strategy, but a reminder that the Earned Income Tax Credit has been expanded for 2021 only. If you haven't been able to claim the credit before, you might qualify now.

The credit is based on your income, tax filing status, and number of children. The maximum credit for 2021 ranges from $1,502 (single filers with no children) to $6,728 (joint filers with three or more children). Also, the maximum age limit for filers without children has been eliminated for 2021. Now, those age 65 and older can qualify for the EITC.

The IRS has announced contribution limits for 2022. Learn more and start planning for next year.

Please note: The contents of this publication provided by MissionSquare Retirement is general information regarding your retirement benefits. It is not intended to provide you with or substitute for specific legal, tax, or investment advice. You may want to consult with your legal, tax, or investment advisor to review your own personal situation. Some of the products, services, or funds detailed in this publication may not be available in your plan. This document may contain information obtained from outside sources and it may reference external websites. While we believe this information to be reliable, we cannot guarantee its complete accuracy. In addition, rules and laws can change frequently.

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