by Kristin P. Sinclair – A Accu Tax – May 3, 2022
The American Rescue Plan has helped the Low to Moderate income American Wage Earner in so many ways. And of interest many and in some areas most hard working taxpayers fall into what could be considered low to moderate income.
Income limits and investment income limits have been increased for more families to potentially qualify for earned income credit. Low to Moderate income families may be able to plan better and then also potentially qualify for a tax credit for putting money into your retirement plan.
So if you have a group health plan with a high deductible health plan, put your maximum amount in your HSA this will lower your taxable income and provide tax free dollars to pay for the health care needs for your health out of pocket needs. And you can keep saving and saving in the HSA up to the allowed annual limit and be tucking even more dollars away for health care needs later on into the future. An HSA is not a use it or lose thing, it is a saving vehicle for you to minimize paying taxes on those HSA contributions. Use those dollars for health care and those dollars will not be taxable. Dental Vision and RX count as valid healthcare dollars spent that will not be taxed. Keep your receipts. It is pretty basic and can help you manage you budget.
Put those retirement dollars in your 401K. That spousal IRA that you have thought about could be more of a priority helping you plan for the future.
If your employer has an FSA available to you for child care allocation and other qualifying FSA expenses maximize that FSA funding. Those dollars are not taxable when used according the IRS guidelines. Ways to lower you taxable income, which could potentially help more families with children qualify for more assistance. Planning ways to utilize income and making less of the income taxable might just make a difference to more families. Allowing for more government tax credits.
Families with Dependent children with a need for Dependent Care Benefits to allow for the care needs of the children while earning a livelihood can as an employee, help find savings by excluding more income from taxes from gross income via (DCAP) Dependent Care Assistance Program through salary reduction pre tax dollars earnings to coverage dependent care expenses. Discuss with your Human Resources the Consolidated Appropriations Act how you can make use of the DCAP.
Families with dependent children will have greater amounts of child tax credits, and some of the funds can be available during the annual period making shifting allocation of funds a bit easier. The advance child tax credit payments will equal half of the estimated child tax credit which will be claimed on the 2021 tax return. So if half of something is received early, those dollars also have to be justified and reported as received on the tax return.
If the family would rather not receive a monthly allocation in advance the tax paying family should review the web site indicated below. Determine if a request that in instead of receiving funds early monthly, the family can request to simply utilize funds receipt when they file their tax return. Which is what families were accustom to previously. With potentially higher amounts impacting the numbers possible at time of tax filing.
For a family with children, who feels that they may actually have a tax due situation. Or significant income and pretty certain their income levels will create a need to repay some of the advanced child tax credit. Putting in a request to not receive an advance child tax credit monthly during the annual period but instead receive those funds with the tax filing could potentially help their situation.
See on www.irs.gov so much information for the tax payer.
https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021.
Some great information for review and assistance in planning. The IRS has provided a portal for you to have a greater level of control. The IRS has created a Child Tax Credit Update Portal as well as an Eligibility Assistant.
As always, the wage earners need to withhold adequately during the annual period based upon the income month by month to make the tax filing a more comfortable experience. When both adults in a Married Filing Jointly return family are wage earners combined incomes can create a higher withholding need than each wage earners income independently suggests might be adequate.
Do you have some charitable giving that you want to do. But with the higher standard deduction for 2021 feel that you will not itemize. Save those acknowledgment receipts from your cash gifts to your charities. You might still be able to take an adjustment to income on your 2021 tax return based upon the allowable amount available.
And if you are a teacher and you are working the qualified number of hours for athe school system, you might be able to make the adjustment to income to offer you little bit more in your pocket at tax time.
Saving funds in a 529 plan for the time when your precious child heads to higher educational opportunities can help make College more realistic and affordable. Even if you are fortunate to have a scholarship or multiple scholarships cover much of the academic expenses associated with college, the 529 funds can also be used to help cover costs associated with meals and housing. Which most educational tax breaks do not help you with. So planning ahead with 529 funds can truly make a difference when college is fast approaching and you are more prepared to make the transition a bit easier for your college bound bundle of joy. And if the Grandparents want to help safe that is a great opportunity as well. A bit saved every year in a 529 plan for many years can really make a difference.
Kristin P Sinclair A Accu Tax
Rock Hill, SC
May 3, 2022
803-329-0615