Tax Planning

Smart Year-End Tax Planning Strategies Regardless of Changes in Tax Policy

Smart Year-End Tax Planning Strategies Regardless of Changes in Tax Policy

Anybody still using paper calendars knows that we're flipping closer and closer to the year's end, and that means it's time to finalize tax-saving strategies. This year's planning feels harder than usual, as we all watch and wait to see how President Biden's infrastructure bill will impact tax policy. Still, even with the possibility of popular loopholes disappearing, there are some smart moves you can make. Here are the strategies that should maximize savings and reduce tax liability in advance of legislative changes.

Tax Loss Harvesting

You can offset investment gains by deducting up to $3,000 in losses against regular income. This is a particularly smart strategy for those who have either had a very good income year or a year where their investments have proven disappointing. Just be cautious about selling and then repurchasing the same assets within 30 days. The wash-sales rule explicitly prohibits loss deductions on everything but cryptocurrency if the “substantially identical” investments are repurchased too quickly. That exception is one of the loopholes that will disappear in 2022 if the Democrats have their way.

Converting Pre-Tax IRAs to After-Tax Roth IRAs

Known as a Roth conversion, this move allows tax-free future growth, and is a particularly smart move in a low-income year when your tax rate will be lower. It's even smarter if you're making more than $400,000 per year ($450,000 for married couples filing jointly), as moving funds from 401(k) or pre-tax individual retirement accounts into Roth accounts is a specific target in the Democrat's plan.

Strategic Charitable Giving

Philanthropic giving has long been a method of cutting taxes, but the deduction became less available when the tax law shifted to a $12,550 standard deduction for single filers and $25,100 for married couples filing jointly. Still, there are ways around this, including giving multiple years' worth of donations every two or three years instead of lower amounts annually. If you're 70 ½ or older, you can also avoid a distribution being counted as taxable income by directing a qualified charitable distribution to be paid directly from your pre-tax IRAs. Doing so may even qualify as your annual required minimum distribution if you are 72 or older. 

Using these or any other strategy now or waiting a bit longer to see what Congress does is a personal choice. If you need assistance in maximizing your tax planning, contact a tax professional before taking action.

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Spencer Wilson

Spencer Wilson

Spencer Wilson, EA is a tax preparer based in Long Beach, CA. Spencer Wilson Financial Management Services has been serving the Greater Los Angeles Area and Orange County since 2004. <br /> We began in the heart of Naples in Long Beach and we continue to work hard offering tax preparation and planning, business accounting and bookkeeping and payroll services . <br /> We have helped many different people and businesses succeed financially and take control over their finances.

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