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Year-End Tax Planning: Why This Year Matters More

With Thanksgiving upon us next week, it struck me as odd that I was listening to a commercial about Christmas shopping … last minute Christmas shopping.  

To be sure, there are only 44 days left in 2021 (and even fewer shopping days.) And while most folks are thinking about turkey dinners and Black Friday, savvy investors are making time for year-end tax planning. After all, there are major tax changes on the table for 2022, and this could mean big bucks to high earners and high net worth folks.

Year-End Tax Planning

In a normal year, this is the time to check in on some basics: Year-to-date income and earnings expectations for the full year, withholding or estimated payments made thus far, capital gains or losses (both realized and unrealized), etc. Once these are accounted for, then further plans can be integrated into the conversation.

Any plans for charitable giving? If so, how? Is there an opportunity to rebalance one's investment portfolio by gifting appreciated stock? This offers tax savings by foregoing capital gains from selling the stock AND taking a deduction against taxable income, especially if the appreciated stock ends up in a donor advised fund.  

What about retirement accounts? If you’re not retired yet, does your current (and future expected income) offer opportunities for Roth conversions? These come with a tax bill today but forgo future taxes when you withdraw funds from your Roth IRA. If you are retired, is there an opportunity to donate your required minimum distribution (RMD) to a charity via a qualified charitable distribution (QCD)? Doing so would avoid income taxes on that required withdrawal. Lots to consider ... for those who are having the right conversations.  

Tax Changes in 2022?

With Congress batting around tax reform for 2022, investors and their advisors have been living in limbo for most of the year. But uncertainty shouldn't breed paralysis. Rather, advisors should be laying out the “what if’s” so that investors are ready to act when the bill finally becomes law.  

The old rule of thumb was to defer income and accelerate expenses. But with income taxes headed higher for some earners, some situations have led to the exact opposite recommendation. For example, a small business owner making over $400,000 annually could save on taxes by signing that new customer this year instead of deferring until January. Further, if this owner was considering some capital investments into her business, those deductions could be more valuable next year versus this year.  

There’s no silver bullet here, as each situation is different. The key is to have the conversation with the right people. If you’re not talking with your wealth manager and tax advisor, you could be leaving money on the table.

Moves To Make Now?

The 2021 tax year isn’t over yet, so there’s still time to explore your options. Have you explored all options, have your tax strtegy right-sized for your situation? If not, contact your advisor and/or CPA.

And if you're interested in exploring our approach, just let us know.