What You Need to Know About Income Taxes This Year

As the days start getting longer and the arrival of spring is almost here, most are looking forward to sunshine, short sleeves, and outdoor activities. But there is an important date during this season that is also quickly approaching—Tax Day.

This year, the IRS deadline to file your taxes is April 18. James Beam, Head of Investment Management, Brokerage, Planning, Retirement & Strategy, U.S. Wealth at TD Bank, and Reid Hartsfield, Wealth Strategist at TD Bank, recently spoke about tips and some important changes for taxes this year.

Get Organized

Making sure all your financial documents are organized to ensure your tax preparation goes smoothly. You don’t need an elaborate system. A simple desktop filing system will do fine.

Before you start working on your taxes, gather all your financial information and file it for quick reference, such as:

• Vehicle expenses and mileage
• Home and office expenses
• Education expenses
• Childcare expenses
• Medical expenses
• Other expenses

In addition to keeping paper copies of important documents, it’s also a good idea to scan and store them as PDFs on a USB thumb drive. This will give you an important backup in case a document is either lost or accidentally destroyed.

Lower Your Taxable Income with Retirement Contributions

If you contribute to a traditional 401(k) or IRA, the money you invest in your retirement account is tax-deductible. This can help to lower your taxable income, which may help you save money on your taxes.

When you contribute to a traditional 401(k) or IRA, you don’t have to pay taxes on the money you invest until you start making withdrawals. Most people will be in lower income tax brackets when they retire, which means they will be taxed at a lower rate than when the money was earned.

You Can Deduct Donations to Charities

Charities do a lot of important work each year. They help provide critical services, such as shelter for the homeless, meals for the hungry, and free medical help to those who don’t have health insurance. To encourage charitable giving, the IRS allows married couples to deduct up to $600 for the 2021 tax year and $300 for individuals for qualifying charitable organizations.

Thanks to special legislation that was passed in response to the Covid pandemic—the Coronavirus Aid, Relief, and Economic Security (CARES) Act—you do not need to itemize to take advantage of this deduction on your 2021 taxes. There is a new section on the tax returns for charitable donations.

Watch Out for Scams

Each year, the IRS warns of an increase in the activity of "scammers" impersonating IRS agents during tax time. The goal of these scams is to either steal your money or your identification. If your identification is stolen, it could be used to file fraudulent tax returns, steal your tax refund, or engage in other criminal activity.

Scammers impersonating IRS agents may try to contact you by text message, email, phone, or through social media. It’s important to keep in mind that the IRS primarily communicates by mail. Although there are some special rare circumstances where the IRS does call people, an agent will never ask for your personal information, ask for an immediate payment, or threaten legal action for non-payment.

You Can File for an Extension

Most people live busy lives, and sometimes things happen that force us to postpone filing our tax returns. You may also need extra time if your taxes are complex.

If you are short on free time, the IRS does permit you to file for a free extension, which gives you until October 15 to file a return. Extension requests are granted automatically and can be submitted online using IRS Free File.

It’s important to point out that if you file for an extension, you still have to estimate your taxes and submit payment. Having an extension means you have more time to file your tax return, not more time to pay.

For More on Personal Finance Topics

If you have more questions about other personal finance topics that matter to you, visit the Learning Center on TD Bank’s website.

We hope you found this helpful. Our content is not intended to provide legal, tax, investment or financial advice or to indicate that a particular TD Bank product or service is available or right for you. For specific advice about your unique circumstances, consider talking with a qualified professional.