Here are some smart tax moves to consider before December 31

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For the better part of the past two years, uncertainty has become a fact of everyday life. In the context of tax law, this is especially true. As taxpayers face new tax legislation at the end of the year, it can be difficult to strategize with so many undecided things.

The consensus from financial experts is that tax rates will increase. The question remains to what extent and to what extent the burden will be laid by the end of the year.

There are still effective tax strategies that can be implemented. While everyone’s individual tax situation requires specific recommendations, there are some general moves to consider before December 31.

For investors:

  • Capital gain recognition. Take some time and review unrealized capital gains with your property manager before the end of the year to capture a potential year-over-year price increase in taxes.
  • Tax-loss harvesting allows you to maximize a deductible net capital loss of $3,000 for the year after capital gains are offset.
  • Don’t forget the long-term capital gains rates of 0%, 15%, and 20% – you can pay lower tax rates when you sell assets held for more than a year, depending on your taxable income.
  • The term of investment in the opportunity area is December 31. It applies to a 5-year base adjustment, 10%, and is excluded before 2026.

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For staff:

  • Maximize contributions in retirement. Review your deferral limits before the end of the year and defer taxes by maximizing your contributions over the remaining pay periods.
  • Maximize flexible spending accounts (FSA) and dependent care spending accounts in 2021.
  • Maximize contributions in a health savings account (HSA), if you have a qualified high-deductible health plan.
  • Keep those catch-up contributions in mind. Individuals age 50 or older at the end of the calendar year can make annual catch-up contributions in a qualified retirement account. Eligible individuals who are over the age of 55 at the end of the calendar year are allowed to make “extra” additional contributions to their HSAs.
  • Review your tax deductions and make changes if needed.

For retirees:

  • Maximize your individual retirement account contributions, whether deductible or non-deductible.
  • Make your required minimum distribution. It’s the IRS-mandated amount that you must withdraw from a traditional IRA or employer-sponsored retirement account each year. You need to start using it at age 72. (Congress allowed people to suspend RMD distributions in 2020 as part of Covid-19 relief, but RMD is back in 2021).
  • Consider a Roth conversion. If you’re in a lower tax bracket than you anticipate in the future, it may be time to switch.
  • Consider qualifying charitable distributions. Now that RMD is back up and running, you can reduce your adjusted gross earnings by up to $100,000.

Combine your tax deductions: Here’s how itemized tax deductions work. You group as many tax-deductible expenses as possible into a tax year. In the year that you itemized your deductions, you’ll split your taxes. The following year, you take the standard deduction. “Pinching” means that you need to carefully plan your deductible periods by taking them for a year instead of two. In doing so, you get a larger tax benefit for the same amount of deductions.

Bar legs: Consider pooling your current year’s charitable deductions with a donor-advised fund, so you increase your charitable deductions and itemized deductions beyond your standard deduction. This will allow you to deduct this year’s charitable contributions and defer the decision to donate to a specific organization to a later time.

Estate tax planning: The official estate and gift tax exemption amounts to $12.06 million per individual for a death in 2022, up from $11.7 million in 2021, according to newly released figures. IRS inflation-adjusted. That $12.06 million property tax exemption will be cut in half in early 2026 as provisions lapse in the Tax Cuts and Jobs Act 2017. Consensus is the exemption. current subtraction may be the best it can be, and the best strategy may be to use it, regardless of the proposed law.

– By Kelly Haggerty, CPA and partner at Group Haggerty Here are some smart tax moves to consider before December 31

Emma James

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