Year End Tax Planning Strategies

As we wrap up 2021, there’s many tax planning strategies to consider. As your tax and financial team, we want to help you navigate your taxes this year, while also planning for your future.

Things to Consider for Tax Planning

Make sure to discuss any of the following areas with your accountant in the coming months:

• Any major changes in your life such as marriages or divorces, births or deaths in the family, job or employment changes, starting a business and significant expenditures (real estate purchases, college tuition payments, etc.).
• Any updates needed to insurance policies or beneficiary designations.
• Tax consequences of converting traditional IRAs to Roth IRAs.
• Review withholding and estimated tax payments and assess any liquidity needs.
• Consider Sec. 529 plans to help save for education; there can be income tax benefits to do so, and we can help you with any questions.

Also, consider tax benefits related to using capital losses to offset realized gains—and move any gains to the lowest tax brackets, if possible.

Make sure you’re appropriately planning for estate and gift tax purposes.

There is an annual exclusion for gifts ($15,000 per donee, $30,000 for married couples) to help save on potential future estate taxes.

Unemployment Compensation

Another thing to note that’s different in 2021 is the treatment of unemployment compensation. There is no exclusion from income. The $10,200 income tax exclusion that a taxpayer may have received in 2020 is no longer available in 2021.

We can help you plan for any potential impacts of this change.

State Tax Obligations Related to Teleworking Arrangements

The pandemic has spawned changes in how people work, due to more people permanently working from home (i.e., teleworking). Such remote working arrangements could potentially have tax implications that should be considered by you and your employer.

Virtual Currency/Cryptocurrency

Virtual currency transactions are becoming more common. There are many different types of virtual currencies, such as Bitcoin, Ethereum and non-fungible tokens (NFTs). The sale or exchange of virtual currencies, the use of such currencies to pay for goods or services, or holding such currencies as an investment, generally has tax impacts. We can help you understand those consequences.

Required minimum distributions (RMDs)

RMDs are the minimum amount you must annually withdraw from your retirement accounts (e.g., 401(k) or IRA) if you meet certain criteria.

For 2021, you must take a distribution if you are age 72 by the end of the year (or age 70½ if you reach that age before Jan. 1, 2020).

Planning ahead to determine the tax consequences of RMDs is important, especially for those who are in their first year of RMDs.

Additional Tax and Retirement Planning Considerations

We recommend you review your retirement situation at least annually. We can help you determine whether you’re on target to reach your retirement goals.

• Make the most of tax-advantaged retirement saving options, such as traditional IRAs, Roth IRAs and company retirement plans.
• Take advantage of health savings accounts (HSAs) that can help you reduce your taxes and save for your future.

Looming Potential Tax Legislation

With potential tax changes looming as Congress debates proposals in President Biden’s “Build Back Better” agenda, uncertainty remains about how this will impact taxpayers.

As legislation continues to evolve, and if it passes, we’ll contact you to discuss how changes impact your tax and financial plan.

Year-end Planning Equals Fewer Surprises

There are many other opportunities to discuss as year-end approaches. And, many times, there may be strategies such as deferral or acceleration of income, prepayment or deferral of expenses, etc., that can help you save taxes and strengthen your financial position.

Whether it’s working toward retirement or getting answers to your tax and financial planning questions, we’re here for you.

View the 2021 tax organizer.