Tax Planning Strategies to Consider at Year End

A simple list of year-end tax planning strategies to consider before 2022

We are finally in sweater weather in Texas which means it’s time to think about year-end tax planning.

In general, we expect higher tax rates in the future so it may make sense to accelerate income into 2021 before tax rates go up. Large deductions or expenses may be more valuable next year if they are able to be deferred.

Everyone has a unique situation but here are a few strategies you can evaluate before year end to reduce your tax burden.

  • Deduct business expenses that you paid personally. Examples:

  • Fully use retirement account limits for 2021 (e.g., 401k, IRA).

    • 401k limit for 2021 is $19,500 and the catch up (50+) is $6,500 per person.

    • IRA contribution limits are $6,000 and the catch up (50+) is $1,000.

  • Harvest crypto losses. Congress proposed closing the wash sale loophole so harvest your losses before year end.

  • Complete backdoor IRA strategy before 12/31/21 if your income is too high (Single > $140,000; MFJ > $208,000) to contribute directly to a ROTH IRA. Congress may end this strategy in the future so take advantage in 2021.

  • Donate to charity. You can donate…

  • Fund your Health Savings Account. These accounts hit the trifecta of tax benefits; tax deduction up front, tax free growth, and tax free withdrawals. Family limit is $7,200 and individual limit is $3,600 for 2021.

  • Ensure your payroll service is withholding enough federal tax to avoid penalties or interest. You can also make estimated payments for Q4 on January 15th.

  • Businesses can consider paying their children for work done in the business.

  • Estimate your marginal tax bracket and consider accelerating or deferring income or expenses depending on your unique situation. We work with our clients at year end to evaluate their tax planning opportunities.

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