As you prepare to file your individual income tax returns ahead of the April 18, 2022, deadline,1 here are four possibilities to lower your 2021 tax bill:
1. Be aware of the standard deduction. The standard deduction for 2021 increased to $12,550 (up $150 from 2020) for single filers and $25,100 (up $300 from 2020) for married filing jointly. Itemized deductions are only useful if they exceed these amounts.
2. Contribute to your health savings account. If you’re in a high-deductible health plan, you might qualify for a health savings account. Your contributions are pre-tax, which reduces your taxable income. Annual contribution amounts are higher for the 2021 tax year. The contribution deadline is April 18, 2022.1
- $3,600 individual coverage (up $50 from 2020)
- $7,200 family coverage (up $100 from 2020)
- Individuals ages 55 and older can make an additional $1,000 catch-up contribution.
3. Contribute to an IRA. Consider contributing to your traditional or Roth IRA — you can do so in a lump sum if you’d like — by the April 18, 2022, deadline1. The maximum total annual contribution across all IRAs for 2021 is $6,000, or $7,000 if you are 50 or older.
- Traditional IRA: Contributions may be tax deductible, depending on your income level and whether you are covered by a retirement plan at work.
- Roth IRA: Depending on your income level, you may be eligible to contribute to a Roth. Roth IRAs are funded with after-tax dollars, but distributions are tax free in retirement if certain conditions are met.
4. Deduct 2021 medical expenses. If you itemize your tax deductions, you may be able to deduct eligible unreimbursed medical expenses that exceeded 7.5% of your adjusted gross income. For the 2021 tax year, deductible medical expenses must have been paid by Dec. 31, 2021. There is a wide range of deductible medical expenses — talk to a tax professional or visit the IRS website for details.
We can help with year-end planning
Smart tax strategies can help you keep more of your money and optimize how much you save for financial goals. Your Ameriprise financial advisor can work with you and your tax professional throughout the year. They can review and discuss how you may be able to take advantage of these and other tax-saving opportunities.