Top 10 Year-End Tax Planning Tips | Business

The Key Wealth Institute recently released its 10 best year-end planning ideas for 2021. Unless a law is passed before the end of 2021 to change the tax code, following these ideas will help you maximize your savings. tax savings. Remember that the Tax Cuts and Jobs Act 2017 is the applicable law.

1. Tax bracket management: accelerate income and postpone deductions

With the possibility of higher tax rates, those with incomes above $ 400,000 might consider accelerating their income until 2021. Roth conversion, harvesting of gains and deferral of harvesting losses, Exercising stock options, speeding up bonuses, speeding up the installment sale gain, or increasing the close date of a sale are just a few strategies to consider. Carry forward any deductions that can be used to offset future income that might be taxed at higher rates.

2. Detailed timing of deductions: acceleration or postponement of deductions

Many more taxpayers are using the standard deduction. Therefore, to maximize itemized deductions in certain years, consider the tactic of “bundling” expenses this year or next to circumvent deduction restrictions imposed by the Tax Cuts & Jobs Act. This applies to deductions such as charitable, state and local taxes, mortgage interest, and various itemized deductions.

3. Harvesting gains / losses: take advantage of reduced tax rates on capital gains

Long-term capital gains are taxed at the rate of 0%, 15% or 20%. You can consider accelerating the sales of fixed assets until 2021. For fixed assets with gains, they can be sold now and repurchased with a higher base so that future sales have less capital gains that could be taxed at. higher rates. Just avoid the blank sale rules that prohibit loss if the same shares are acquired within the 61-day period starting 30 days before and ending 30 days after the sale.

4. Roth conversions

With the potential for higher future tax rates, many more people are considering a Roth conversion and are now paying tax on the conversion at the lower rates. As you approach the end of the year, you will be able to determine your 2021 marginal tax bracket and projected investment income with more certainty. If you’re trying to convert your traditional IRA to a Roth IRA to fill out a tax bracket, start those conversions now. Roth conversions can reduce future minimum distributions required and create a potential tax-free inheritance.

5. Charitable planning

This year presents opportunities to maximize the deductibility of charitable contributions. Donors can deduct cash donations to public charities up to 100% of adjusted gross income for 2021. The limit will revert to 60% of the AGI after 2021. With the potential for increased corporate tax rates. capital gains, consider donating valued assets to charity to avoid having to recognize the gain.

Also consider the Charitable IRA Rollover which allows a person 70 and a half or older to make a qualified charitable distribution of their IRA directly to a charity. This distribution does not count as income and may help you meet your RMD for that year.

6. Review your estate plan

With the amount of the federal exemption for estates and gifts having now doubled to $ 11.7 million per person, people with taxable estates should take advantage of the increased exemptions by using lifetime gifts. Remember that the inheritance tax exemption reverts to old levels at the end of 2025. This is a “use or lose” opportunity.

7. Low interest rate environment

With interest rates still low and the prospect of higher rates in the future, the benefits of some estate planning strategies are increased. For those who expect a taxable estate, current conditions favor estate freeze strategies such as a Charitable Lead Annuity Trust to benefit a charity and provide non-charitable beneficiaries in the future, with the benefit additional charitable income tax deduction.

8. Review your portfolio

With the potential for increasing the rate of capital gains over the long term, you may need to consider what this means for a concentrated equity position and how it can impact your diversification strategy. Examine portfolios for weak core stocks and consider implementing a capital appreciation strategy. If your portfolio consists of investments that currently pay eligible dividends currently taxed at lower prime rates, you may need to consider the impact of this on your portfolio.

9. Maximize tax-efficient savings vehicles

With the potential for future tax rate increases, it may be more important to maximize tax-efficient vehicles. Reduce taxable income by increasing pre-tax salary deferrals to employer-sponsored retirement plans (401k, 403b, 457 and SEP-IRA). Remember to consider IRA contributions for non-active spouses. Also maximize your savings by using tax-efficient health plans such as Health Savings Accounts (HSAs).

10. Review beneficiary designations

With the planning of the IRA, the Retirement Community Establishment Act (SECURE Act) of 2019 eliminated the “Stretch IRA” which previously allowed IRA recipients to withdraw remaining funds over the course of the year. of their life expectancy. Inherited IRAs must now be distributed within 10 years of the death of the original owner. Review your beneficiary designations to see how the SECURE law impacts future distributions to those who inherit your retirement accounts. There are ways to simulate an extended IRA using life income strategies such as designating a charitable residual trust or charitable annuity as the beneficiary of the account or using the RMD to purchase insurance. life which will offer a non-taxable benefit to the heirs.

With the end of 2021 quickly approaching, be sure to consult with knowledgeable tax, legal, and financial professionals before making any major changes to your tax planning.

Wm. Steve Wright is a Managing Member of the Wright Legacy Group.

Wm. Steve Wright is a Managing Member of the Wright Legacy Group.