Year-End Tax Planning

​2022 is right around the corner and most strategies to reduce your 2021 tax liability expire on 12/31/21. Now is a great time to review your situation and implement any potential tax saving measures. Below are a few of the most common individual planning opportunities: ​​

• If you expect to be in the same or lower tax bracket next year consider accelerating deductions into 2021 and/or deferring receipt of taxable income. If you expect to be in a higher tax bracket you may benefit from doing the reverse.  
• Assuming that you will itemize, one way to accelerate deductions would be to increase your charitable donations prior to year-end. Any donations made before 12/31/21 will be deductible on your 2021 return. 
• The Tax Cuts and Jobs Act (TCJA) raised the standard deduction. Depending on your individual situation, “bunching deductions” may make sense in any given year. An example of this strategy would be a taxpayer who normally gives a certain amount monthly as a charitable contribution to a specific organization. During 2021, they would make their normal monthly donations and then on or before 12/31/21 they would “pre-pay” all of their 2022 donations to move the entire amount into 2021.
• Related to charitable donations, if you are planning on making a substantial gift you may want to donate appreciated stock.  The benefit is two-fold; you will get a deduction for the full market value of the stock AND you don’t have to pay capital gains tax on any unrealized gain. 
• Donor Advised Funds are also an option that are becoming more popular under the TCJA. Taxpayers with significant assets to donate in the future may want to consider a DAF to accelerate the deduction into the current year.
• 2020 Tax Returns were allowed a special "above the line" charitable deduction (essentially increasing your standard deduction) of up to $300 for taxpayers who take the standard deduction. This deduction was renewed for 2021 and has been updated to allow for up to a $600 deduction for married filing joint returns.
• Consider maximizing 529 Plan contributions for children and grandchildren. The funds will grow tax free, and will be distributed tax free in the future provided they are used for qualified education expenses. In addition, under the expanded definition of qualified education expenses, you can now use 529 plan assets to pay for elementary or secondary school costs. (Bonus: Georgia residents using a Georgia Path2College 529 Plan are also eligible for a current year deduction on their state income tax return.)
• Take advantage of the increased limits by contributing more into an IRA or other retirement account. 401(k) base contribution: $19,500, 401(k) catch-up contribution (for taxpayers age 50 and older): additional $6,000, IRA base contribution: $6,000, and IRA catch-up contribution (for taxpayers age 50 and older): additional $1,000. 401(k) contributions must be deferred from your paycheck before 12/31/21, IRA contributions can be made up until 04/15/22.
• If you are eligible for an HSA account consider contributing to it as well. Self-only coverage: $3,600. Family coverage: $7,200.
• Harvest portfolio gains and/or losses. If you have gains in your portfolio, are eligible for the 0% capital gains rate, and expect to be subject to the higher capital gains rates in the future, you may want to sell now. Then repurchase the securities you want to keep and increase your cost basis to the new purchase price. If you have securities that are worth less than you paid for them and you are ready to reinvest the money elsewhere, you may want to go ahead and sell.  “Harvesting” the capital loss before year end will allow you to offset the loss against any taxable capital gains in your portfolio. If you do harvest losses, make sure that you are aware of the “wash sale” rules and wait at least 30 days if you are going to repurchase a substantially identical security.  (The wash sale rule does not apply to harvesting gains.)
• Use your Flex Plan at work. It is a “use it or lose it” account. Generally, you must use it by 12/31/21 unless your plan allows for the optional two and a half month carryover or $500 carryover provisions. (Some plans have temporary rules in place to add more flexibility during the pandemic, so check with your plan administrator if you have funds that may remain unused.)
• Out of Pocket Medical and Dental expenses will need to exceed 10% of your 2021 adjusted gross income in order to be deductible this year.
• Low to moderate income earners can take advantage of the expanded Saver's Credit.
• Consider converting a Traditional IRA to a ROTH IRA. You pay tax in the year of conversion but all future growth will be tax free.
• If you didn't receive the Third Round Stimulus you may be eligible for the 2021 Recovery Rebate.
• Make sure that you count all of your qualified child care costs, the Child and Dependent Care Tax Credit has been expanded and increased for eligible taxpayers. 
• Don't forget that there is the potential for major tax changes from Congress before year-end, so stay focused on that and how it impacts your specific tax planning situation.

This is general information and a brief summarization of complicated tax issues which are often subject to many exclusions and limitations. We make every effort to verify the accuracy of all information but we do not guarantee or warranty advice disseminated over the internet. Please give us a call to discuss potential strategies and ensure they make sense for your specific situation.  ​