Tax Planning

Remark: Some concepts for year-end tax planning

Column by Patricia Kummer

Another year is in the rearview mirror and what a year it was! The stock market rises (and falls), inflation rises, and interest rates stay low. They may be under- or over-employed, work from home, or commute. This year’s challenges can offer opportunities for short-term tax savings, so it’s always good to have a plan.

There are still some last-minute tax planning ideas out there that you can implement in just a few days. Given the significant unknowns about the potential tax law in 2022, it may be best to take advantage of the best for 2021.

  1. Review your investments for gains whenever you want to reduce your gains and use current long term capital gain rates. You can also reap losses if you are still looking for the prints this year.
  2. Determine if this year is the perfect time to convert some of your pre-tax money into a Roth IRA. Low current tax rates, along with low income if you leave your job this year, could give you a long-term, tax-free benefit.
  3. Contribute to a SEP, IRA, or Solo 401 (k) or maximize your final paycheck to 401 (k) contributions.
  4. Consider paying your estimated state income taxes in December instead of January. There is still the possibility that the deduction limit for state and local taxes (SALT) will be increased before the end of the year.
  5. If the Build Back Better legislation passes with the increased SALT cap, consider paying your property tax in December instead of next April for a higher deduction this year. Then no property tax would be due for the next year, but you can still make the standard deduction.
  6. Consider donating to charity, especially if you are able to list. If you have a large income tax bill, you can even open and fund a donor-recommended fund before the end of the year. This will allow you to claim the full tax deduction this year and have plenty of time going forward to plan which charities will receive donations.
  7. Don’t forget to take your Required Minimum Distribution (RMD) if you are 72 years or older. You didn’t have to take one last year due to COVID, so it may not be on your radar. However, there is a 50% penalty if the correct amount is not taken. Also, don’t forget that you can donate all or part of your RMD up to $ 100,000 to charity without listing your taxes.
  8. Review Your Qualifying Corporate Interest Deductions if you own a small business. You can fully deduct up to 20% of your operating income. This gives you an instant benefit if you are eligible.
  9. You might want to make a big buy for your business as this year’s section 179 is higher than ever at up to $ 1,050,000. This allows you to write off an eligible business expense rather than writing it off over time.

Now is the time to enjoy the holidays and prepare for the next year. The retirement plan contributions will be increased by $ 1,000 to $ 20,500 for 401 (k) s, plus the $ 6,000 catch-up contribution for those over 50. The IRA and Roth IRA limits remain unchanged at $ 6,000 plus a catch-up contribution of $ 1,000. Make sure you are eligible to deduct your IRA based on your income and your employer’s pension plans.

Patricia Kummer has been a Certified Financial Planner Professional and Fiduciary for over 35 years and is Managing Director of Mariner Wealth Advisors, an SEC-registered investment advisor.

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