As a very eventful 2021 comes to a close, the jury (and the senate) is still out.
By way of full disclosure this year’s tips are subject to change. The final version of the "Build Back Better Bill" passed by Congress in November, is waiting approval by the Senate. While there is no way to predict what will remain in the final version of the Bill or when certain changes will take effect, there are still several options to consider. As always, we recommend that you consult with your tax advisor prior to year-end for guidance.
- Review investment gains and losses
- Ask your tax advisor if you should accelerate losses on investments this year to offset other income. You may claim up to $3,000 of losses in excess of your gains.
- Note: Joint filers with taxable income of less than $80,000 may want to recognize long-term capital gains this year as their tax rate is 0%. ($40,000 for single or married filing separately.)
- Maximize your retirement savings
- The contribution limits on IRAs or Roth IRAs is $6,000 in 2021 with an additional catch-up contribution of $1,000 for taxpayers age 50 and over.
- Consider opening a SEP IRA for any self-employed income. Taxpayers can contribute 25% of their compensation, up to a total contribution of $58,000.
- The 401k plan contribution limit is $19,500, with an additional contribution of $6,500 for taxpayers age 50 and over.
- Roth IRA Conversions
- This might be a good time to take advantage of the lower tax rates and consider converting all or part of an IRA to a Roth IRA.
- The amount converted is treated as taxable income, so it is important to understand what tax bracket you are in for 2021.
- There are currently no limits. However, pending legislation could change that.
- Maximize Charitable Gifts
- 100% of cash gifts can be deducted if you itemize deductions, (due to expire this year). Deductions for cash gifts are normally capped at 60% of adjusted gross income. Check with your tax advisor to see if you are on the cusp and an increase in your gifts to charities would allow you to itemize all or a portion of your contribution.
- Taxpayers who take the standard deduction can still deduct cash gifts to charities up to $300 for individuals and $600 for couples.
- Consider donating appreciated securities before year end to a Donor-Advised Fund. The unrealized gains are not taxed when sold and you will get a tax-deductible charitable contribution equal to the market value of the security on the day it is donated.
We believe that tax-planning is a year-round exercise and must be discussed in the context of your financial circumstances and goals. We are available to assist and coordinate your year-end planning with your tax advisor.
Ask us about our tax-managed investment strategies.
Information provided by Independent Advisor Solutions by SEI, a strategic business unit of SEI Investments Company (SEI).