4 Tax Moves to Bust Out at the End of the Year

4 Tax Moves to Bust Out at the End of the Year

The end of the year can be really taxing, and we don’t just mean all the craziness of the holidays. We mean the Uncle Sam kind of taxing. 


The financial world is constantly changing, especially the last year and a half. There were the job changes, ongoing stimulus checks, child tax credits, and even more chances for legislative moves to increase taxes before the year ends. Confused yet on what to expect for your 2021 tax bill? You aren’t alone.


But instead of throwing up your arms in frustration, consult with your tax advisor and consider busting out these four planning moves to help thwart a big tax bill come the new year:

1. Jump on a Roth Conversions

Consider making a Roth Conversion from your retirement accounts. Pre-tax contributions in 401ks, 403bs and IRAs contain money that you initially received a tax deduction on. In the future when withdrawals get made, taxes will get paid. The benefit to having your money in a Roth IRA, instead of a traditional one, is that you can save on taxes if you think that you tax bracket will be higher when you retire.


Rolling pre-tax savings into a Roth (after-tax) and pay the taxes on them immediately is called a Roth Conversion. In the long run, you would pay less on your rollover and enjoy tax-free withdrawals in retirement (rather than allowing your money to grow larger and larger and paying taxes on the escalated amount). Roth conversions can take place in IRAs and inside most 401k and 403b plans. Check with your employer to be sure it is allowed, since plan rules govern eligibility.


2. Slide in Some More Retirement Savings

Simply contributing more money to your traditional, pre-tax accounts — 401(k), 403(b), or IRA — can help lower your tax liability. Those contributions can be deducted from your overall income in the year they are made. Be sure to evaluate if you qualify for IRA deductions, since there are income limits.


Deadlines for contributing include: Tax Day on April 15 2022 to make IRA contributions, and by the end of the calendar year 2021 to make 401(k) and 403(b) contributions.

3. Shuffle around Tax Losses

End up with some loser investments this year? Don’t worry, it happens to the best of us. If you did, those can work in your favor come tax time. When you sell an asset at a price lower than the purchase price, you can use that loss to offset any gains you’ve made elsewhere. This lowers your overall capital gains tax liability. Plus, if you lose more than you gain, you can deduct up to $3,000 from your regular income on your taxes.


Of course, because you’re dealing with the government, there are some stipulations that come with that, such as not reinvesting or choosing an identical investment for 30 days after you sell for a loss. So just be cognizant of all of the rules.

4. Kick Up Your Charity

Tis’ the season for giving! Charitable donations are tax-deductible if you itemize. Keep track of all your receipts for donations, including any unsold items from your garage sale that you dropped off at Goodwill. For tax filers who claim the standard deduction, thanks to the CARES Act,  you can deduct up to $300 in cash donations ($600 for married filers). 


Additionally, there is the option for anyone taking Required Minimum Distributions (RMD) from retirement accounts to take advantage of the Qualified Charitable Donations (QCD) tax rules, which allows up to $100,000 of RMD funds to be donated to charity each year without taking any of the distribution as taxable income. 


There are no guarantees these options will be available again in future tax years, so definitely seize the opportunity if you are eligible and not relying on those retirement funds.

Make Your First Move

Need a partner to help you break down all of the end-of-year tax planning? Our financial advisors can help you with all of the ins and outs. Schedule an appointment and we can help you decide what makes cents for you. 


Sheena Hanson, CFP® - Investment Advisor Representative and CCO

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