The IRS recently posted a number of reminders about steps taxpayers can take in December to make sure they are ready for the upcoming tax season. Here are some key highlights:
- USE UP YOUR FSA FUNDS:
If you have a workplace flexible spending arrangement (FSA) for medical or other qualified expenses, remember that FSAs have an annual use-it-or-lose-it rule. You will typically forfeit any funds left in the account on January 1. However, your employer may offer a special carryover or grace period option for health FSAs this year due to the pandemic. Check with your workplace benefits department to learn how the use-it-or-lose-it policy may affect your account. If you are at risk of losing funds, schedule qualifying expenses like dental work or eye checkups now.
- SET UP A BANK ACCOUNT WITH DIRECT DEPOSIT:
If you provide direct deposit banking information to the IRS, you can get your tax refund up to three weeks faster than with a mailed check. If you do not know whether your accounts can receive direct deposits, check with a customer service agent at your bank.
- DONATE TO CHARITIES:
The holiday season is an ideal time to contribute to charitable organizations, and there is an extra incentive to be generous this year. Ordinarily, taxpayers can only deduct charitable contributions if they itemize deductions. However, the American Rescue Plan Act created a special tax provision that enables taxpayers to claim a deduction of up to $300 (up to $600 for joint filers) for monetary contributions to qualifying charities in 2021. You can use the IRS tax-exempt organization search tool (link below) to verify that your charity of choice accepts tax-deductible donations.
A tax professional can help you plan your FSA use and charitable giving strategies, and suggest other steps to ensure a smooth filing season without unpleasant surprises.
IRS Charity Search Tool: https://www.irs.gov/charit…/tax-exempt-organization-search