In normal times, procrastinators would have tried in the past week to exceed the April 15 deadline for filing taxes. As we all know, these are not normal times and the tax deadline has been postponed to May 15th. This is good news for the procrastinators.
Not only do you have additional time to file your tax returns, but you can also use this time to finance your individual retirement account 2020 and your health savings account.
If you recently received a stimulus check and your bills are up to date and you are financially comfortable, there is an opportunity to do something smart with your found money.
For most, their 2020 returns were submitted weeks ago. That means their notes will likely be filed and tax information stored on their computers. I suggest that this year you might want to do things a little differently. Consider having your 2020 tax details ready for review.
I am saying this because significant tax changes are being discussed in Washington. Knowing where you were in 2020 can help you make smart decisions in 2021 as the changes are expected to take effect in 2022.
During the month of March, many people became very aware of their college basketball clips. Yet when I ask people what tax bracket they are in, they seldom know the answer. That means they may not make the best decisions with their money.
For example, if a married couple had taxable income between $ 80,251 and $ 171,050 in tax year 2020, it would be in the 22 percent class. Simply put, for every dollar they make in this bracket, Uncle Sam takes 22 cents.
If you and your spouse collectively earn $ 90,000 and want to convert $ 10,000 of your IRA to a Roth IRA, you know the tax liability is $ 2,200 because you are in the 22 percent range. However, if you are making $ 171,050 and want to convert $ 10,000, you are in the 24 percent range and owe $ 2,400 in taxes. Was the additional income of $ 50 worth it? I know it’s complex, but knowing your bracket can help you make smarter money management decisions
As tax legislation is discussed in the coming months, we often hear the phrase “fair share”. But what exactly is a fair share? There are tons of stories out there of parents having multiple jobs so their kids can go to college and have better lives. If these children are financially successful, how much should Uncle Sam pay in taxes? Is it 40 cents of every dollar earned? Or 50 cents or even 60 cents?
Some other topics are discussed and debated. How much money can a parent leave to their heirs without taxing the nest egg? And are new taxes really needed, or should we just close the multiple gaps in the existing tax code? I would like to get involved. But of course all points of view should be discussed and discussed.
I worry that politics seems to have overtaken math.
Have these tax returns ready and know your parenthesis. With changes on the horizon, that knowledge could help you have a few more dollars in your pocket instead of giving it to Uncle Sam.
Securities offered through LPL Financial, member FINRA / SIPC. Email your questions to [email protected]. Ken is a registered agent of LPL Financial. Ken is the vice president of the Society for Lifetime Planning. All opinions expressed are those of Ken Morris. LPL and Society for Lifetime Planning are independent companies. The investment involves risk, including loss of capital. No strategy ensures success or protects against loss. This information is not a substitute for individual tax advice. We recommend that you discuss your specific tax situation with a qualified tax advisor.