Make sure you claim your charitable tax deductions, on Form 1040 or Schedule A
Don't make any of these 12 common tax filing mistakes

5 March tax moves you can make to cut your 2021 IRS bill

Hello march in notebook handdrawn flowers_pexels-bich-tran-910193-1
Photo by Bich Tran from Pexels

Sure, taxes are due on April 18 (this year), but March is big tax month.

Today is the start of the final full month before your 2021 return — and, if you owe, any tax — is due. That means there's still time to take some steps to help shave some off that possible tax bill.

Here are five March tax moves, mostly retirement related, to consider.

1. Open or add to your traditional IRA. You can put money into any IRA, traditional or Roth, by Tax Day and designate it as applying to the prior tax year. If you don't have an IRA, you also have until the April deadline to open one and use it for the previous year's contributions.

For 2021, you can contribute up to $6,000, or $7,000 if you're age 50 or older. That is, of course, contingent on you having earned that much.

In certain financial and employment situations, your traditional IRA can be deducted.

The biggest tax break is available to filers and, if married, their spouses who don't have workplace retirement plans. Income thresholds, known as your modified adjusted gross income, or MAGI, kick in if either of you participate in a job-offered plan.

The following IRS table shows how much of your IRA addition can help lower your 2021 tax liability if you're covered by a retirement plan at work.

If Your
Filing Status Is

And Your MAGI Is

Then You Can Take

Single or
head of household

$66,000 or less

a full deduction up to the amount of your contribution limit.

more than $66,000 but less than $76,000

a partial deduction.

$76,000 or more

no deduction.

Married filing jointly or
Q
ualifying widow(er)

$105,000 or less

a full deduction up to the amount of your contribution limit.

more than $105,000 but less than $125,000

a partial deduction.

$125,000 or more

no deduction.

Married filing separately

less than $10,000

a partial deduction.

$10,000 or more

no deduction.

If you file separately and did not live with your spouse at any time during the year, your IRA deduction is determined under the "Single" filing status.

 

2. Contribute to a spousal IRA. Where couples' incomes and workplace plan situations negate traditional IRA tax deductions, they still might be able to achieve some savings through a spousal IRA.

For jointly filing couples, a spouse that didn't have any taxable income might be able to contribution to an account known as the Kay Bailey Hutchison Spousal IRA. It was named after the former U.S. Senator from Texas who championed the plan.

As long as the other spouse had income, that amount is used to calculate eligibility and contribution limits.

Each spouse can put money into the Kay Bailey Hutchison IRA up to the current limits, which are the same as other IRAs. Again, for 2021, that's $6,000 per account, or $7,000 if you're age 50 or older.

Note, too, that as with other IRAs, the total spousal IRA contribution cannot be more than they earn. That's the couple's taxable compensation reported on their joint return.

If the working spouse didn't participate in a workplace retirement plan, all the spousal IRA contributions will be deductible.

But if the working husband or wife is covered at work, income limits, as with traditional IRAs apply. If the MAGI reported on your 2021 joint tax return is no more than $105,000, you can deduct the full amount of your spousal contributions. That deductibility begins to phase out between $105,000 and $125,000. You get no spousal IRA deduction if your MAGI is more than $125,000.

You can read more about spousal IRAs in IRS Publication 590-A.

3. Contribute to your self-employment retirement account. If you are your own boss, even if just some gigs to supplement your regular wages from a company, you can open a retirement account for that money.

While some self-employed retirement accounts must be established by the end of the tax year, other are more flexible. Simplified Employee Pensions (SEPs), Keough plans, and defined benefits plans may be established and contributions made up to the due date for filling a return.

Even better, if you get an extension to file your tax return, you have until that new mid-October deadline to open and contribute to these accounts and have it count toward the prior tax year.

4. Claim the Saver's Credit. If you contribute to your retirement account, be sure to check out the Saver's Credit. This tax break, which is a dollar-for-dollar reduction of any tax you owe, isn't available to everyone. It's income restricted so that lower- and middle-income savers get the most benefit.

But if you qualify you could get a tax credit of up to $1,000 per person. For married couples who add to their individual nest eggs, that $2,000 on their joint return. And it bears repeating. Those amounts are directly subtracted from any tax you owe.

For 2021 tax returns, you can get the full Saver's Credit if, as a single filer, your adjusted gross income is $19,750 or less. The credit is reduced if you make more, phasing out completely if you make more than $33,000.

Married filing jointly couples can make as much as $39,500 and get the full Saver's Credit. Their credit amount is reduced incrementally and eliminated for couples making more than $66,000.

5. Make HSA contributions. Health savings accounts, or HSAs, are a triple tax-saving threat. You get a write-off for contributions, tax-free growth in the account, and don't owe any tax on withdrawals used to cover qualified medical expenses.

Sounds great, right? They are, but only for folks who have high deductible health plans (HDHP). In these cases, their HSAs help pay their larger out-of-pocket medical expenses.

For 2021, HSA owners with individual HDHP coverage you can contribute up to $3,600 to an HSA. Family HDHP coverage will let you put up to $7,200 in an HSA. Policy holders who are 55 or older can sock away an additional $1,000 for the tax year.

And, as with IRAs, your HSA contributions can be made for 2021 by Tax Day 2022.

More March Tax Moves: Whew! That's a lot to kick off this new month. But you've got the rest of the month and into April to act if your March tax persona is more that of lamb than a lion.

If, however, you're ready to attack your taxes like feisty felines go after boxes, there's more you can do this month.

You can find additional Tax Moves over in the ol' blog's right column. As usual, these pieces of tax advice are listed under the countdown clock that's keeping track of the countdown to Tax Day 2022.

 

Advertisements

 

 

 

 

Comments

Feed You can follow this conversation by subscribing to the comment feed for this post.

Verify your Comment

Previewing your Comment

This is only a preview. Your comment has not yet been posted.

Working...
Your comment could not be posted. Error type:
Your comment has been saved. Comments are moderated and will not appear until approved by the author. Post another comment

The letters and numbers you entered did not match the image. Please try again.

As a final step before posting your comment, enter the letters and numbers you see in the image below. This prevents automated programs from posting comments.

Having trouble reading this image? View an alternate.

Working...

Post a comment

Comments are moderated, and will not appear until the author has approved them.

Your Information

(Name and email address are required. Email address will not be displayed with the comment.)