In normal times, procrastinators would shuffle past weeks to exceed the April 15 tax filing deadline. As we all know, these are not normal times, and the tax deadline has been moved to May 15th. That’s good news for procrastinators.
Not only do you have extra time to file tax returns, but you can also use that time to fund your individual pension account and health account.
If you have recently received a stimulus check and your bills are current and you feel financially comfortable, there is an opportunity to do something smart with the money found.
For most, applications for 2020 were filed a few weeks ago. This means that their notes are likely to be archived and tax information stored on their computers. I suggest that you may want to do something different this year. Consider making 2020 tax data readily available for review.
I say this because Washington is discussing significant changes to tax law. Knowing where you stood in 2020 could help you make wise decisions in 2021 because change is likely to take effect in 2022.
During the month of March, many people were aware of their colleges in college basketball. Yet when I ask people what tax class they are in, they rarely know the answer. This means that they may not make the best decisions with their money.
For example, in tax year 2020, if a married couple had a taxable income between $ 80,251 and $ 171,050, it would be in the 22 percent range. Simply put, for every dollar they earn in this bracket, Uncle Sam takes 22 cents.
If you and your spouse jointly earned $ 90,000 and wanted to convert $ 10,000 into a Roth IRA, you know that, given that you are in the 22 percent grade, the tax liability would be $ 2,200. However, if you earned $ 171,050 and want to convert $ 10,000, you would find yourself in the 24 percent category and thus owe $ 2,400 in taxes. Was it worth the extra $ 50 in earnings? I know it’s complicated, but knowing your brackets can help you make smarter money management decisions
As the tax law will be discussed in the coming months, we will often hear the phrase “fair share”. But what exactly is a fair share? There are countless stories of parents working multiple jobs so their children can go to college and live a better life. When these children become financially successful, how much tax should Uncle Sam take? Is that 40 cents on every dollar earned? Or 50 cents or even 60 cents?
Several other issues will be discussed and debated. Like how much money can a parent leave to their heirs without the nest being taxed? And are new taxes really needed or should we simply correct the multiple loopholes in the existing tax law? I would love to get involved in that. But of course, all points of view need to be discussed and debated.
My concern is that politics seems to have overtaken mathematics.
Keep your tax returns handy and know your parentheses. With the changes on the horizon, that knowledge can help you keep a few more dollars in your pocket, instead of giving it to Uncle Sam.
Securities offered through LPL Financial, a member of FINRA / SIPC. Email your questions to [email protected]. Ken is a registered representative of LPL Financial. Ken is the vice president of the Life Planning Society. All opinions expressed are the opinions of Ken Morris. LPL and the Life Planning Society are independent companies. The investment involves risk, including loss of principal. No strategy ensures success or protects against loss. This information is not a substitute for individualized tax advice. We suggest that you discuss your tax situation with a qualified tax advisor.