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December 11, 2021

2021 Some Potential Year-end Tax Moves

Maybe possible before year-end

Accelerate or defer income
Depending on you anticipated tax position for this and next year you may have the opportunity to accelerate income into 2021 or defer some to 2022. Some possible sources of income are collection of compensation, sales of property, sale of investments, collection of rents, collection from an installment sale, receipt of required minimum distributions and conversion of any portion of your traditional IRAs to Roth IRAs.

Accelerate or defer deductions
If you itemize deductions, making payments for deductible expenses such as medical expenses, qualifying interest, and state taxes before the end of the year (instead of paying them in early 2022) could make a difference on your 2021 return. If you do not itemize you may be able to defer enough expenses to itemize in 2022.

Make deductible charitable contributions
If you itemize deductions on your federal income tax return, you can generally deduct charitable contributions, but the deduction is limited to 60%, 30%, or 20% of your adjusted gross income (AGI), depending on the type of property you give and the type of organization to which you contribute. (Excess amounts can be carried over for up to five years.)

For 2021 charitable gifts, the normal rules have been enhanced: The limit is increased to 100% of AGI for direct cash gifts to public charities. And even if you don’t itemize deductions, you can receive a $300 charitable deduction ($600 for joint returns) for direct cash gifts to public charities (in addition to the standard deduction).

Contribution of securities with long term gains can be advantageous. If you itemize deductions, you can deduct the value as of the date you made the contributions. Whether you itemize your deductions or not the gain is not taxable. Contact the charity for instructions. If you are transferring the securities from your financial institution to theirs you will need the name of their financial institution, account number and routing number.

Increase withheld tax
If your employer has the capacity to withhold tax before December 31, 2021, notify your employer. They may be able to increase the tax withholding by the amount you specify. Alternatively, you will need to submit a Form W-4 for the remainder of the year to cover the shortfall. There may not be enough time for employers to process a Form W-4 to change withholding before December 31, 2021. The biggest advantage in doing so is that withholding is considered as having been paid evenly throughout the year instead of when the dollars are taken from your paycheck. This strategy can be used to make up for low or missing quarterly estimated tax payments.

There are other alternatives that maybe available. Consider having tax withheld from a transfer of funds from your financial institution to another account or financial institution. You would not want to do this if would be subject to penalties if the funds are in retirement plans. This maybe applicable if you have not taken your 2021 Required Minimum Distributions.

Maximize retirement savings
Deductible contributions to a traditional IRA and pre-tax contributions to an employer-sponsored retirement plan such as a 401(k) can reduce your 2021 taxable income. If you haven’t already contributed up to the maximum amount allowed, consider doing so. For 2021, you can contribute up to $19,500 to a 401(k) plan ($26,000 if you’re age 50 or older) and up to $6,000 to traditional and Roth IRAs combined ($7,000 if you’re age 50 or older). * The window to make 2021 contributions to an employer plan generally closes at the end of the year. The payment must generally be paid by April 15, 2022,

*Roth contributions are not deductible, but Roth qualified distributions are not taxable.

Take required minimum distributions
Required minimum distributions (RMDs) were waived for 2020. They are required for 2021. You must start withdrawing your RMD at age 701/2. If your 70th birthdate is July 1, 2019, or later you do not need to withdraw your first RMD until you are 72 years old. RMDs generally must be withdrawn from traditional IRAs and employer-sponsored retirement plans (special rules apply if you’re still working and participating in your employer’s retirement plan). You must make the withdrawals by the date required — the end of the year for most individuals. The penalty for failing to do so is substantial: 50% of the amount that wasn’t distributed on time.

Weigh year-end investment moves
Tax considerations should not drive your investment decisions. However, it’s worth considering the tax implications of any year-end investment moves. For example, if you have realized net capital gains from selling securities at a profit, you might avoid being taxed on some or all those gains by selling losing positions. A loss will not be recognized if the security is purchased within 30 days before or after the sale. Any losses over and above the amount of your gains can be used to offset up to $3,000 of ordinary income ($1,500 if your filing status is married filing separately) or carried forward to reduce your taxes in future years.

The foregoing is provided for information purposes only. It is not intended or designed to provide legal, accounting, tax, investment, or other professional advice. The above is not a complete discussion of the requirements, limitations, or applicability. Such advice requires consideration of individual circumstances. Before any action is taken based upon this information, it is essential that competent, individual, professional advice be obtained. JAS Financial Services, LLC is not responsible for any modifications made to this material, or for the accuracy of information provided by other sources.

Read more from Income Tax, etc.