Year-End Tax Planning – Take action now to reduce your taxes

Patrick Cote |

BY: SUSAN POWERS, CFA, CPA, CFP®, CPFA

Finding time to think about tax planning now may seem premature.  However, now is exactly when you need to be thinking about your year-end tax planning and more importantly; talking with your Advisor, your tax professional, or attorney as well.  Make sure you have time to implement the strategy that is best for you.

Consider reviewing these options with your team of professionals prior to December 31st.

Maximize contributions to tax-advantaged accounts

Employer provided plans:

  • Are you taking full advantage of your employer-provided retirement plans? December 31st is the deadline for funding 401(k), 403(b) or 457 plans. If you haven’t maxed out yet for the year, you may be able to bump up your contributions with your remaining paychecks. For 2021, you can contribute up to $19,500, plus a catch up of $6,500 if age 50 or over.

Self-employed:

  • A solo 401k may be the best option for you by potentially allowing you to contribute a larger percentage of your income than you would be able to do with a SEP IRA.  With a 401k, the portion that is considered your personal deferral should be made by year end. 

Charitable Contributions

Donate appreciated assets:

  • With markets at all-time highs, you likely have large, unrealized gains on some of your taxable investment holdings.  Assuming you’ve owned the asset for at least one year, you can get a two-for-one tax break. You avoid the capital gain from selling the investment and you can write off the current market value – not just what you paid for it.

Qualified Charitable Distributions (QCDs):

  • Taking Required Minimum Distributions (RMDs)?  If you don’t need the money and want to avoid paying taxes on it, you can make a Qualified Charitable Distribution directly from your IRA to the qualified charity. The distribution counts toward your RMD and is not taxable.  See this link for more detail on QCDs.

Pass-Through Businesses

Pass-through business ownersoperating as a Sole-Proprietor, LLC, or Sub S-corp, be sure to optimize your 20% Qualified Business Income deduction (QBI). 

As we approach the end of another year, it is a good time to review and reflect on your current situation.  Reach out to your tax professional for further advice on your specific tax situation.  As always, contact us with any questions you may have about how to best invest for your future.