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Year-End Tax Planning Reminders

|  November 1st, 2021

Year-End Tax Planning Reminders

It might not seem like it now, but the end of the year will soon be here. Before we ramp up to the holiday season and all of the obligations that come with it, let’s take this downtime to get our year-end tax planning squared away so we can enjoy the time with our friends and family and minimize our 2021 tax bill.

Tax-Loss Harvesting

Tax-loss harvesting allows investors to offset capital gains with losses. Investors can sell investments that are down, replace them with similar assets, and offset realized gains with those losses. TLH means less money goes to taxes and more stays invested. If you had a good year income-wise or had a lot of losses, TLH may be a good strategy.

Be aware of wash-sale rules. The rule forbids taking the tax write-off if you buy the same security, a contract or option to buy the security, or a “substantially identical” security within 30 days before or after the date you sold the losing investment. An easy way to avoid falling afoul of this rule is to invest in an ETF or mutual fund that invests in the same industry the losing stock you sold was part of.

Max Out Retirement Accounts

If your employer offers 401(k) matching, make maxing out this account your priority. If you can’t afford to max it out ($19,500 for 2021, an additional $6,500 for those aged 50 and over), at least contribute the amount required to receive matching funds.

If you have an IRA, generally, you have until tax day to make contributions for the prior year. The 2021 limits are $6,000 and an additional $1,000 for those 50 and older.

If you have a Health Savings Account (HSA), consider maxing that out too. The 2021 limits are $3,600 for an individual and $7,200 for a family.

Do a Roth Conversion

Withdrawals from a Roth IRA aren’t counted as income for federal (and usually state) income tax purposes. A Roth also doesn’t require RMDs, so the money can remain in the account to grow tax-free. You will have to pay taxes for the amount converted, but that can be a smart strategy for some people.

Spend Down Your Flexible Spending Account (FSA)

If there is any money remaining in your FSA account as of December 31, you’ll have to pay taxes on it. And unless your employer allows the remaining funds to be rolled over to the following year, you’ll lose it.

Review Medical and Dental Expenses

If you had medical and dental expenses that weren’t reimbursed, you can deduct them if they’re more than 7.5% of your Adjusted Gross Income (AGI).

End of Year Gifts

The annual gift exclusion tax is $15,000 per recipient for 2021; married couples can gift $30,000. These tax-free gifts are a way to move assets out of a potentially taxable estate, so a useful estate planning tool.

Charitable Contributions

Usually, if you take the standard deduction, you can’t claim a deduction for charitable contributions. But the Taxpayer Certainty and Disaster Tax Relief Act allows those who don’t itemize to take a deduction of up to $300 for cash contributions made in 2021.

Take Required Minimum Distributions (RMDs)

RMDs were suspended for 2020 but have resumed this year. RMDs must be taken from all employer-sponsored retirement plans, Traditional IRAs, SEP, and SIMPLE IRAs, by December 31 unless you turn 72 during the year. In that case, the date is April 1.

Failure to comply will result in a 50% excise tax on the amount that should have been withdrawn based on your age, life expectancy, and the amount in the account at the start of the year. Roth IRAs don’t require RMDs for the original account holder.

In 2022

Like the holidays, Tax Day tends to sneak up on us too. Here are some things to do so you’re ready when it’s time to file for 2021:

Gather documents like last year’s tax return, W2s, 1099s, receipts, etc.

Document the price you paid for any stocks or funds you sold in 2021.

Suppose you usually prepare your own taxes but had a significant life change in 2021, a marriage, a divorce, bought a business, etc. In that case, you may want to consider hiring a professional because preparing your taxes will now be more complicated.

The end of the year is also an excellent time to check in with your advisor, particularly if you’ve had any of the significant life changes mentioned above, including having a child. You may need to update benefit designations, buy or increase life insurance, or start a 529 Plan. Whatever your needs and any questions you have, we’re here for you.


Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In additional, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.