Tax Moves to Make Before Year-End

Tax Moves to Make Before Year-End with hand holding cube saying 31 for taxable income

Tax Moves to Make Before Year-End Are you looking to try and reduce your taxable income? Here are some tax-saving moves. However, they must be completed by December 31.

  • Tax-loss harvesting

 If you own stock in a taxable account that is not in a tax-deferred retirement plan, you can sell your underperforming stocks by December 31. And use these losses to reduce any taxable capital gains. If your net capital losses exceed your gains, you can even net up to $3,000 against other income such as wages. Losses over $3,000 can be used in future years. Just be sure you do not repurchase the same stock within 30 days, or the loss will be deferred.

  • Take a peek at your estimated 2022 income

If you have appreciated assets that you plan on selling soon, estimate your 2022 taxable income and compare it to your 2021 taxable income. If your 2022 income looks like it may be significantly higher than 2021, you may be able to sell your appreciated assets in 2021 to take advantage of a lower tax rate. The opposite also holds true. If your estimated 2022 taxable income looks like it may be significantly lower than your 2021 taxable income, lower tax rates may apply if you wait to sell your assets in 2022.

  • Max out pre-tax retirement savings

The deadline to contribute to a 401(k) plan and be able to reduce your taxable income on your 2021 tax return is December 31. See if you can earmark a little more money from each of your paychecks through the end of the year to transfer into your retirement savings accounts. For 2021, you can contribute up to $19,500 to a 401(k), plus another $6,500 if you’re age 50 or older. Even better, you have until April 18, 2022, to contribute to a traditional IRA and be able to reduce your taxable income on your 2021 tax return.

If you are self-employed, the maximum contribution to a SEP IRA (Simplified Employee Pension Plan) is $58,000 per year or 25% of employee pay, whichever is less. For self-employed individuals specifically, contributions are limited to 25% of your net earnings from self-employment up to the $58,000 limit.

  • Make cash charitable contributions

If you’re like 90% of all taxpayers, you get no tax benefit from charitable contributions because you don’t itemize your personal deductions. However, on your 2021 tax return, you may contribute up to $300 (except for those filing as married filing separately, which is $1500 each) in cash to a qualified charity and deduct the amount whether or not you itemize your deductions.  You can make your contribution by check, credit card, or debit card. Remember that

  • Bunch deductions so you can itemize

Are your personal deductions near the amount of the standard deduction for 2021: $12,550 for singles, $18,800 for the head of household, and $25,100 for married filing jointly? If so, consider bunching your personal deductions into 2021, so you can itemize this year. For most, the easiest way is to bunch two years of charitable contributions into a single year. These can include gifts of appreciated stock where you get to deduct the fair market value without paying capital gains tax.

Meeting annually, before tax season, with your Enrolled Agent or tax professional to discuss these and possibly other ways to reduce your taxable income and potentially lower your tax liability is well worth the investment.  You have less than eight weeks to contact us. Book your appointment online, or call the office, 772-337-11040.

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