Top Tax Tips

Experts talk about ways you can save on taxes

By Deborah Jeanne Sergeant

While in the throes of the tax season, it’s a good time to consider how you can improve your tax situation for next year. Ask your tax preparer about what applies to your finances.

Three local financial experts suggest the following:

Suggestions from Diana Apostolova, investment consultant with Rochester Investments:

• “For anyone who is still working, maximizing retirement contributions is a great way to lower taxable income. The 2021 employee contribution to a 401k or 403b is $19,500 for anyone under 50, and $26,000 for anyone over 50. If saving at the highest level is possible, this will not only reduce the taxable income in the current year but also add needed dollars to a retirement account that will come in handy down the road.

• “For anyone that may have lost their income or have a lower income in 2021, looking into a Roth IRA conversion may be sensible idea. Assuming no change in tax laws, this will allow for taxes to be paid this year and will eliminate any further taxes.

• “For anyone who has a small business and no employees or only family members as employees, the contribution amounts to a retirement account are much higher and can be made in such a way to maximize tax savings significantly.

• “For retirees, ensuring that your total taxable income is coordinated with your Social Security payments to minimize or eliminate taxes on social security is a good practice to do in advance.

• “With a potential increase in capital gains tax rates from the new Biden administration, ensuring that your savings are in the correct account type is critical. This is also critical when it applies to distributions to beneficiaries.

• “Having the correct account type at death can save a lot of money paid from the decedent’s estate or by the beneficiaries thereafter. For high income earners, required minimum distributions, RMDs, can still be made directly to a charity, thus saving the retiree to pay taxes on these distributions. Also, for high income earners, having the ability to put a charitable contributions plan in place may not only benefit the charity but also benefit the retiree and their families.”

Suggestions from Lizz Ortolani, president and owner of Ortolani Services, Inc. in Rochester:

• “Consider increasing the contributions to the health savings account (HSA). The IRS publishes limits every year and the funds roll over every year. That lowers your taxable income. Some HSAs, depending on the financial institutions, are higher yields. It helps to shop around to look at the fees and interest that they pay.

• “One of the misconceptions is you can only have an HSA if you’re employed. That’s not the case. If you have a high deductible health plan, you can use an HSA. Contributions can be made all year long until April 15 for the next year for the previous tax year. If you’re eligible to contribute to an HSA, you’re eligible to contribute until April 15 for the previous year. You can contribute monthly, regularly or once a year.”

Suggestions from Jeff Feldman, Ph.D., certified financial planner with Rochester Financial Services:

• “As you get older and closer to retirement, understand that putting money into a retirement plan during your last few years of work makes a lot of sense. You put the money in while you’re working and if you’re at a 25% bracket while working and retired, you may be down to a 10% bracket. It makes a lot of sense to put more money in while you’re in a high tax bracket.”

• “A lot of people have a shoebox of receipts and information and a lot of it isn’t usable material. Because of the 2017 tax law, most people can’t itemize. When it comes to giving to charity, if you’re over 70.5, you’re allowed to have money from your IRA account go directly to a charity. That way, you can satisfy your required minimum distribution. You’re getting the benefit of itemizing even if you cannot itemize. Most people are not itemizing because of the new tax law. For qualified charitable distributions, instead of writing a check, you send a list to your IRA custodian. You pay the charities in pre-tax dollars.