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These 3 Last-Minute Moves Can Still Slash Your 2021 Tax Bill

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  • If you're fretting about your 2021 tax bill, there may still be a chance to slash your balance before the filing deadline.
  • You can score a deduction by contributing to your traditional individual retirement account, spousal IRA or health savings account.
  • However, with relatively low tax rates, you may consider skipping the deduction for long-term savings.

If you're fretting about your 2021 tax bill, financial experts say there may be a chance to slash your balance before April 18, the deadline for most filers.



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With limited options after year-end, taxpayers may still have a few possibilities, said certified financial planner David Haas, president of Cereus Financial Advisors in Franklin Lakes, New Jersey.

These strategies may offer a so-called "above-the-line" deduction, reducing your adjusted gross income, which may also boost your eligibility for other write-offs. Here's what to know.

1. Add to your individual retirement account

There's still time to funnel money into your traditional individual retirement account for a 2021 deduction. You can add up to $6,000, or $7,000 if you're age 50 or older, provided you've earned that much from a job.

However, the ability to write off your deposit depends on participation in your workplace retirement plan — deferrals, company matches, profit sharing and other employer deposits — and your income, with phaseouts as earnings increase. There's an IRS chart with the full details here.

Still, contributing to an IRA may be especially beneficial for lower earners with a balance due, said Rose Swanger, a CFP with Advise Finance in Knoxville, Tennessee.

Some low- to moderate-income investors may also claim the saver's credit, a bonus write-off of up to 50% of retirement contributions, capped at $1,000 for single filers and $2,000 for married couples filing jointly.

2. Contribute to a spousal IRA

If you participate in a workplace retirement plan and make too much money for a regular IRA deduction, you may still qualify for a write-off for spousal IRA contributions since there are higher income thresholds. 

Your spouse may deposit money into their own IRA based on your earnings, even if they don't work outside of the home, Haas from Cereus Financial Advisors explained. 

The contribution limits are the same as regular IRAs, meaning you can save $6,000 or $7,000 per account, depending on each spouse's age.

3. Health savings account contributions

You can also still make health savings account contributions for 2021 with an eligible high-deductible health insurance plan.

These accounts offer three distinct tax breaks: a write-off for contributions, tax-free growth and no levies on withdrawals for qualified medical expenses.

"Love to show this in front of clients," Swanger with Advise Finance said, explaining how contributions may have a big impact on taxes. "It motivates them to save in their HSA in future years."

While individual health plans allow a deposit up to $3,600 for 2021, family coverage permits up to $7,200.  

The downsides of write-offs for 2021

It's easy to see the appeal of a lower tax bill, but some experts urge clients to consider the long-term cost.

"Tax rates for many Americans are at the low end of historical ranges," said Sean Michael Pearson, a CFP and associate vice president at Ameriprise Financial Services in Conshohocken, Pennsylvania.

The current rates, enacted by former President Donald Trump's signature tax overhaul, will sunset after 2025, he explained, triggering higher levies for many Americans in 2026. That's why after-tax IRA contributions may be worth exploring.

"It's possible a slightly larger tax bill in April is your best bet in the long run," he added.

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