Most Americans dread tax season due to the payments, the documentation and the accounts. However, 2021 could be a slightly easier tax season with a few simple changes to your approach to your taxes.
Four steps for a better tax season in 2021
Before 2021 begins, every resident should take time to implement these practices into their finances:
- Ditch any losing investments – Many people hold on to stocks in hopes of a recovery or value increase. Instead of holding onto declining stocks, sell them. The tactic is called tax-loss harvesting, and it helps those whose losses exceed their gains. It allows for a strong deduction on your following tax filing.
- Sell some winning stocks – While this point seems counterintuitive from the last step, it’s essential to know that what you pay in taxes is based on what you paid for an asset and its appreciation at the sale. If you have a vast difference between buying a stock and its value, you will pay more in taxes.
- Conduct charitable giving – There are several reasons why you should donate whenever you can. But there are two main tax benefits to donations. There is a $300 deduction for donors that give cash to charity, and donors who itemize deductions have a heftier tax break for cash donations from 2020.
- Remote work could mean complications – If you worked remotely in one state and hold residence in another, you may face tax liabilities in both locations. To avoid complications, work with your payroll department to ensure that your remote work doesn’t mean you pay double in taxes.
The most important tip for a great tax season is not to wait. Start preparations early so you can get the most advantages from your filings every season.