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Tax Planning Checklist Before the End of the Year

While there are several pending tax law changes that may create uncertainty, our planning will continue to evolve going into the new year as legislation is passed. For questions regarding your personal tax checklist before the end of the year or concerns about changes in 2022 and beyond, please reach out to our office directly. As we wrap up 2021, we have highlighted 5 items below to check off your list before the end of the year.

One. Review asset allocation & consider tax-loss selling in non-retirement accounts

With the market continuing to set all-time highs, review your allocation to ensure it is aligned properly with risk tolerance and time horizon. If there are tax losses on positions in taxable accounts, consider harvesting losses to offset gains as you rebalance. Also consider the 30-day Wash Sale rule in taxable accounts.

Two. Max out Retirement Plan Contributions

Review contributions to employer-plan retirement accounts to confirm you have maximized contributions for the year. For those employed or for non-working spouses, each person may also be eligible to contribute $6,000 ($1,000 catch up for 50+) to a tax-deductible IRA or a non-deductible Roth IRA; both are subject to income limits. For those self-employed, a SEP IRA can be open and funded up to the date you file your business tax return, including extensions (next year). The maximum contribution for a SEP IRA is 25% of compensation up to $58,000.

Three. Complete your Required Minimum Distributions (RMD)

For those with an Inherited retirement account (IRA or Roth) and for those over the age of 72 with a pre-tax retirement account, be sure you have taken the full RMD by December 31 to avoid the IRS penalty. If you are over age 72, another option is to take a qualified charitable distribution up to $100,000 directly from the IRA.

Four. Consider a Roth IRA Conversion

This can be an effective planning tool to utilize current tax brackets which are assumed to be lower now than in the future. Consider current income and convert all or a portion of your pre-tax IRA into an after-tax Roth IRA, paying taxes at today’s rates and allowing the Roth accounts to grow for tax-free income in the future.

Five. Make your Charitable Contribution

You can make a charitable contribution by donating highly appreciated stock, cash, or a distribution directly from a Donor Advised Fund. You can also make a large contribution into a Donor Advised Fund for a tax deduction in this calendar year. In 2021, charitable contributions made with cash can be deducted up to 100% of Adjusted Gross Income. You can also aggregate multiple years of contributions into one tax year to take full advantage of this tax deduction.

As we wrap up 2021, check in with your financial advisor to confirm completion of the tax checklist before the end of the year. Also consider scheduling a planning session for 2022 in preparation of the tax changes that are in place for the new year. Always review with your CPA or tax advisor for tax advice and planning. Please also reference 2 links directly to the IRS web site on announcements for updated tax limits and changes in 2022. The advisors in our office are here if you have any questions.


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