How You May Qualify for Valuable Tax Credits in 2021

Transcript-

CJL (00:00):

Stimulus checks are starting to arrive in bank accounts this month, but not for everyone. I have a friend that I’ll call George who had his heart set on buying the latest 4k TV so he could watch the college basketball tournament in style. I was there when his accountant told him that he missed the eligibility cutoff by $750. Suddenly George morphed into the face from that famous movie, when the young rebel discovered the truth that his father was an evil Lord.

Award Winning Actor (00:29):

No, that’s not true. That’s impossible!!!!!!!

CJL (00:38):

Well, unfortunately it was true, but there is a way that he still might get a benefit in 2021. Hi, I’m Chuck Lewandowski CERTIFIED FINANCIAL PLANNER™ professional and I’m going to describe how you might reduce your taxable income and hopefully become eligible for stimulus relief in 2021. Most of the benefits from the latest stimulus plan known as the American rescue plan are triggered if your adjusted gross income is less than $150,000 if you’re married, and $75,000, if you’re single. Higher than those levels, the benefits are reduced or disappear entirely.

Here are four ways you may be able to get under those limits and receive valuable tax credits when you file your 2021 tax return. Here’s number one, maximize your retirement plan contributions. In 2021, you can contribute $19,500 to your 401k plan. If you’re over age 50, you can add $6,500 more into the plan for 1220 $6,000.

CJL (01:41):

If your spouse is employed, he or she can also put money into their plan. If you are self-employed and you have sufficient income, you can establish a solo 401k plan, which will allow you to for up to $58,000, plus a $6,500 catch-up if you’re over 50 years old.

The second is contribute to a spousal IRA. An employed spouse can contribute to a deductible IRA for the benefit of an unemployed husband or wife if certain requirements are met. If one spouse is covered by an employer plan and the other is not, the employed spouse can contribute $6,000 to the unemployed spouse’s IRA. If George is married and meets income requirements, he can contribute to his unemployed wife’s IRA on her behalf.

Number three, take advantage of your health savings account. A health savings account or HSA was designed to allow employees to use the re premium savings from a high deductible health plan to offset the higher deductible, which they may incur.

 CJL (02:48):

If your family qualifies, you can deduct up to $7,200 in 2021. If you’re over 55 and not eligible for Medicare, you can add another thousand dollars to your account and maybe a thousand dollars for your spouse.

Number four, increase your dependent care flex spending account salary reductions. The new stimulus act more than doubled the amount of pre-tax income that an employee can contribute to a qualified dependent care account to $10,500. For those parents who have children in daycare, this can be a great pre-tax  savings opportunity. But you must be careful – that benefit is a “use it or lose it” benefit.

 If George can take advantage of some of these features, he could potentially reduce his taxable income in 2021 and received the stimulus tax credits.

The American rescue plan provides several valuable benefits besides stimulus checks. These include enhanced child and dependent care credits, increased unemployment benefits, COBRA modifications, and healthcare marketplace changes. To fully understand how this legislation affects you, you need a team of trusted advisors to help you through the maze. I would be happy to be on your team. Please give me a call and let’s make a plan.