Tax Tips

November Thinking About Taxes: Really?

autumn leaves

November thinking about taxes: In general, November is not the normal time to think about tax planning.

Tax planning is considered an annual drudgery beginning around January 15 and ending on April 15. Not something to ruin the holiday spirit.

Yet actually, there are tax-savings tasks to think about at year-end. Doing so can make the January – April slog much smoother.

Why is Planning to Save Taxes So Loathed?

But I get it – no one wants to think about taxes at the holidays, or at all. And why is that? Here are several reasons given by Roger Pine, Founder of Holistiplan, a tax analysis software for financial advisors:

1) It’s a bill for one of the biggest expenses all year (most times exceeded only by housing costs).

2) You are responsible for preparing your own bill, or hiring someone to do it for you.

3) The bill forms are a design disaster with unintelligible instructions that take years of schooling beyond a college degree to completely understand.

4) Even when the bill is done correctly, it’s difficult to see why you got charged what you did.

5) If you don’t prepare the bill, or do it wrong, there are serious legal consequences.

6) If you want a smaller bill next year, you have to know how to decipher the forms for clues. (That’s why it’s called the tax “code.”)

7) It stinks to hear afterward, “If you had only done X, you would have saved Y,” if it’s too late to do X.

As a result, how do taxes make most of us feel? Helpless and uninformed. Not the most empowering feelings from a financial standpoint.

Tax planning and preparation does not help us achieve that sense of financial wellness, or as they say in financial therapy circles, financial “self-efficacy.” 

Worth Taking the Time

In fact, November is a great time to consider a few year-end moves like:

  • Roth conversions,
  • taking capital losses or capital gains,
  • doubling up on property taxes and charitable contributions, or
  • making IRA and HSA contributions.

Sound like a lot? It could be, but it could also save hundreds or thousands on April 15. If you have a CPA and/or CFP®, all you have to do is gather a few documents and let them do the rest. Gather these:

1) Your September or October brokerage statements (the whole statement, not just screenshots);

2) Your latest paystubs, Social Security statements, or other items showing regular income; and

3) Any large one-time transactions that happened or will happen this year, like a real estate closing statement or estimate.

After reviewing these, be ready to answer more specific questions, such as any changes in your deductions. Don’t worry about exact figures – it’s ok to estimate right now.

Why is November So Important for Tax Planning?

One important goal is to make sure you don’t end up with a taxable income figure that’s just barely over some kind of threshold or bracket. This can cost a lot more than necessary.

An extreme but could-easily-happen example: A couple in their 60s with one spouse still working and one over 65 on Medicare reported $195,000 in 2021 modified adjusted gross income (MAGI). That was $1,000 over the threshold of $194,000 for the first (of 6) Medicare surcharge brackets. The additional $1,000 in income cost the couple an additional $936 in 2023 Medicare premium surcharges. That’s a marginal tax rate of 93.6%!

If it’s year-end and you determine that you’re close to the edge of a threshold, you have a few weeks to strategize. A few easy moves:

  • If you’re employed with a 401K, or you have a deductible IRA, make sure you have maxed out your contributions. If you turned 50 this year, remember you now get an extra catch-up contribution.
  • If you have a Health Savings Account, make sure you have maxed out your contributions. If you turned 55 this year, you now get an extra $1000 catchup contribution.
  • If you have a business, can you push income to January or accelerate expenses into December?
  • If you are over 70 1/2, you can make a Qualified Charitable Distribution (QCD) from your IRA. (more info here: https://www.hollydonaldsonfinancialplanner.com/keep-charitable-deduction/)
  • Instead of giving cash to charities, you can give them an asset (like stock) with a large capital gain. Depending on whether you itemize, you might get a deduction instead of showing the gain.
  • If you believe you are in a lower tax bracket now than you will be in retirement, and additional income won’t bump you up against any of the other thresholds, consider a Roth or partial Roth conversion. (But do it soon. It can take several weeks to accomplish, depending upon which company holds your accounts.)

Based upon a November estimate of your income and deductions, your professional can begin to strategize in other ways, too. (Schedule a 30-minute call with us if you’d like to talk more about tax planning or other money topics: https://bit.ly/3GWZNrc)

Being proactive on taxes can be a vaccine against stress. Imagine feeling more in control in April once you see how much you helped shrink your tax bill at year-end.

If you haven’t wanted to think about taxes in November before, it might be worth your while to think again.

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IRA RMD? Try ABC

IRA RMD? Try ABC

Studies show more RMD’s (Required Minimum Distributions) are taken in the fourth quarter than the first nine months of the year.

What are RMDs?

Required Minimum Distributions (RMD’s) are familiar to almost anyone with a retirement account – 401K, 403B, 457, or IRA. RMDs are a minimum annual withdrawal requirement from the account. For your own account, they begin at age 72. For an account inherited before 2020, annual RMDs began right away. Both of these types of RMDs are calculated using IRS-provided tables. The company where you keep your account will calculate the RMD in January each year for you.

For an account inherited in or after 2020, there is no annual distribution requirement. Instead, the new requirement is to distribute the entire account within 10 years.

When to Take RMDs?

There are varied reasons people wait to take their RMDs. They may not need the income and prefer to keep the money invested all year. They may not be comfortable with the logistics of requesting it from the company holding the account (called the “custodian.”) They may not want to decide what investments to use to accomplish the RMD. All of these reasons can be perfectly rational reasons to delay.

Turning a Task into a Gift

Yet all of these reasons also focus on the RMD as a financial task to be accomplished.

Unless the RMD is a significantly large amount, any financial strategy involving the “best” timing of it is purely a guess. Rather than viewing it as a financial task, it’s possible to turn it into a memorable or even fun opportunity.

Try these A-B-C ways to make a Required Minimum Distribution more intentional, or something special.

A is for Anniversary

Especially if you inherited the account, taking the RMD on the anniversary of your loved one’s loss can be a way to remember the gift they left you.

If it’s from your own retirement account, consider taking it on the anniversary of your last day at work.

B is for Birthday present

Whether it’s your own money or inherited, what about using the RMD during your birthday month to do or buy something special only for you?

With most custodians, this can be set up as an automatic distribution to your checking account. Imagine, you open your bank account on your birthday and, voila’, birthday money to spend as you like.

C is for Charitable donation

The 2017 tax law means far fewer people itemize deductions now. To maintain the tax-favored status of a donation, sending all or part of an IRA RMD directly to a qualified charity can be a wise move. This is called a QCD – Qualified Charitable Distribution.

There are several rules to keep in mind, though.

First, you have to be at least 70 1/2 years old.

Second, do not distribute to yourself first and then donate it. The donation must go directly from your account to the qualified charity.

Next, QCDs can only happen from IRAs, not employer retirement accounts like 401Ks, 403Bs, or 457s.

Before making the distribution, it’s a good practice to contact the charity to make sure they qualify. For example, donor advised funds and some private foundations will not be eligible for a QCD donation.

Conveniently, some custodians provide a checkbook for IRAs. If you are going to do QCDs, you might call this your “Charity Checkbook.” Be sure to write the check in plenty of time for it to clear before December 31.

Using your RMD this way can be both financially and emotionally valuable – you might get a deduction you otherwise would not. Plus, you get to see the impact of your gift on a cause you care about. Ask your CPA or tax planner whether it would work for you.

ABC Combinations

Some people combine two of the three ABC’s. They might give a direct charitable donation as a birthday present to themselves, or donate the RMD in memory of their loved one on their loss anniversary.

Whether you are taking them now or will in the future, be intentional about RMD’s. Rather than feeling like a last-minute task of the year, use the requirement to make some fun or meaningful memories.

Reach us here to talk more about year-end tax planning.

What year-end tax tips do you have?

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Fourth Quarter Tax Tip: Check Your Fund Distributions

Fourth quarter tax tip: If you hold any mutual funds in non-retirement, taxable accounts, now is the time to begin checking on “projected capital gain distributions.”

What are projected capital gains distributions?

When mutual funds sell securities for capital gains, they don’t pay taxes on them. Their shareholders do. The funds pass the gains through to shareholders each year through reporting them on Form 1099. For many shareholders, the 1099 gains come as a surprise tax bite. The value of the fund may not have increased at all in the past year, but yet, they still have to pay tax on capital gains.

Why are these important?

Because of 2022’s roller coaster market ride, many funds are going to show larger-than-normal capital gains, regardless of what happens to their value between October and December. For the funds’ shareholders, that could mean lots of extra taxes. Even if you bought the fund mid-year, you may still get a capital gain distribution.

What To Do About Large Distributions

You can look up your fund’s projected distributions at the fund’s website, or, use this site to take you directly to your fund(s)’ relevant page: https://mutualfundobserver.com/discuss/discussion/60074/2022-year-end-capital-gains-distribution-estimates

More helpful information on the nature of capital gain distributions is provided by this article, too:

https://humbledollar.com/2019/11/the-unwanted-payday/

If you would like help in the fourth quarter – figuring out 2022 taxable income while there is still time to make adjustments before year-end, schedule a tax planning appointment with your CPA or schedule a 30-minute call to talk with us here: https://go.oncehub.com/HollyPThomas.

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Floridians: Wait ‘Til July 1 to Buy Kayaks, Grills and Broadway Passes

Floridians, wait until July 1 to buy that kayak, new grill, or Broadway series pass. The state of Florida has a Freedom Week sales tax holiday encouraging us to a) get outside and b) get back to sharing space with strangers.

The holiday lasts from July 1 to July 7, 2022. Depending on the county in which you live, that could mean a 6% to 8% savings.

Two Exemption Categories

The savings cover two main categories: a) outdoor activity supplies and b) events.

“Outdoor activity supplies” include everything from bug spray to gas grills (the first $500 – sorry, gourmet grillers). Reading the list of exempted items makes me want to spend the rest of the summer in the water (many of these do have limits ranging from $500 down to $10):

  • canoes and kayaks
  • water skis and wakeboards
  • paddleboards and surfboards
  • coolers
  • goggles, snorkels, and masks
  • sunglasses and sunscreen
  • rods, reels, bait and tackle

For woodsy type landlubbers, exempt (also with limits) are:

  • binoculars
  • bicycles
  • bug spray
  • camping supplies
  • outdoor gas or charcoal grills

Camping supplies include stoves, tents, collapsible chairs, lanterns, flashlights, and sleeping bags. (Gee, this also reads like my hurricane preparedness list.)

Events and Annual Passes

For even more fun, “events” include tickets to any concert, movie, game, fair, festival, cultural event, or gym with attendance dates through December 31, 2022. Note: You have to buy the ticket between July 1 and July 7 for any event scheduled through the rest of 2022 to get the exemption.

Events also include annual passes to:

  • museums
  • theaters (hello, Broadway series, orchestra, and opera)
  • state parks (which I didn’t know they charged sales tax on in the first place?)

Despite its property-tax-free status (for now), sorry, but Disney does not count as a state park.

No limits on the cost for the passes. So if you’re considering venturing out for the Broadway series, purchasing the pass between July 1 and July 7 might save you enough to cover dinners before the shows.

For a complete description, see the state of Florida’s TIP sheet at: https://floridarevenue.com/taxes/tips/Documents/TIP_22A01-04.pdf

There are other sales tax holidays also going on right now. Read the comprehensive list here and mark your calendar for May of next year to watch this space for 2023: Inflation Relief: Florida 2022 Sales Tax Holidays

How will you take advantage of the Freedom Week sales tax holiday?? Leave a comment below.

Continue ReadingFloridians: Wait ‘Til July 1 to Buy Kayaks, Grills and Broadway Passes

Inflation Relief: Florida 2022 Sales Tax Holidays

Inflation relief: Florida 2022 Sales Tax Holidays. In inflationary times, every bit of savings can help. Florida sales tax runs anywhere from 6% to 8%, depending upon the county where you are making the purchase. Several years ago the Florida legislature started sales tax “holidays,” beginning with the back-to-school season.

Flush with a budget surplus this year, the legislature passed several more holidays which begin this summer. Some of them last a week, while others last up to 2 years. For a major purchase you might be considering, it pays to know the timetables.

Disaster Preparedness: May 28 – June 10, 2022

This has been an annual sales tax holiday for a few years now. If you are in or near Florida, and getting low on batteries, bungee cords, coolers, tarps, portable generator(s?), or several other items listed in the link below, you can save the sales tax by waiting until the week of May 28 to stock up.

Of note, the holiday includes all kinds of pet provisions – pet food, pet kennels, pet beds, leashes, and even pet waste disposal bags.

Here is the link to the 2022 list of exempted disaster preparedness items:

https://revenuelaw.floridarevenue.com/LawLibraryDocuments/2020/05/TIP-123007_TIP_20A01-02_FINAL_RLL.pdf

Big Deal – Home Hardening Disaster Preparedness: July 1, 2022 – June 30, 2024

This one is a bigger deal and can save major bucks. Impact-resistant windows, doors, and garage doors will be fully exempt from sales tax for 2 years starting July 1.

So if you are planning a major home improvement, talk to your contractor about placing the order after June 30. On a $5,000 order, in a 7% sales tax county, that’s a $350 savings.

Unlike most of the other holidays, this exemption also applies to commercial orders.

More detail on home hardening exemptions here: https://floridarevenue.com/taxes/tips/Documents/TIP_22A01-07.pdf

Also Big Deal – Appliances: July 1, 2022 – June 30, 2023

Thinking about replacing appliances? Wait until July 1 and you can save the sales tax on Energy Star appliances. High-end appliances are not included, and the definition of “high-end” appears to be about $1500 ($3000 for refrigerators). $1500 x 7% = $105 in possible savings.

More detail on appliance exemptions here: https://floridarevenue.com/taxes/tips/Documents/TIP_22A01-05.pdf

Children’s Books: May 14 – August 14, 2022

Sales tax on any book written for children under 12 is waived all summer. One of my personal favorites: The Four Money Bears by Mac Gardner. This website also has a fun financial literacy game for kids called “Berryville.”

Fun Events, Outdoor Supplies and Annual Passes: July 1 – July 7, 2022

This sales tax holiday began during the pandemic in 2020. Event tickets, camping supplies, paddle boards, kayaks, binoculars, grills, and bicycles are some of the larger ticket items included in the holiday.

Of note also – annual or season passes for museums, theater series, ballet, and state parks.

New for 2022: pool supplies and parts.

The complete list for events and supplies during “Freedom Week” is here: https://floridarevenue.com/taxes/tips/Documents/TIP_22A01-04.pdf

Children’s Diapers, Clothing and Shoes: July 1, 2022 – June 30, 2023

This has been proposed but blocked in the past. Finally parents and guardians of young kids will get a little relief.

But this is one of two holidays (the other being back-to-school) where the state outlines what is excluded, in addition to what is included. And, as I wrote in 2021, the inclusions and exclusions aren’t always easy to guess.

What constitutes “clothing” and “shoes” for this holiday for toddlers and babies? A few head-scratchers:

Snow ski boots – Yes; Fishing boots/waders – No

Snow ski suits – Yes; Skin diving suits – No

Hunting vests – Yes; Life jackets – No

Garden gloves – Yes; Bicycle gloves – No

Click for the complete list of diapers, clothing and shoes: https://floridarevenue.com/taxes/tips/Documents/TIP_22A01-06.pdf

Back-to-School: July 25 – August 7, 2022

New exemptions for 2022 include learning aids like puzzles, flash cards, and games.

See this year’s complete back-to-school list: https://floridarevenue.com/taxes/tips/Documents/TIP_22A01-08.pdf

New Holidays for 2022: Labor Day/Skilled Workers September 3 – September 9, 2022

Larger-ticket items on the “Tool Time” holiday include power tools under $300, power tool batteries, toolboxes, and work boots. It also includes shop lights, plumbing tools, and duffle bags.

More detail on “Tool Time” exemptions here: https://floridarevenue.com/taxes/tips/Documents/TIP_22A01-09.pdf

A Lack of Preparation Story

During Hurricane Irma in 2017, the middle of the spaghetti models 5 days out showed the storm was likely going up Florida’s east coast. This is the opposite coast from where we live. My husband and I got double-busy with clients who wanted to squeeze in appointments before it hit. We got caught up in the work and ignored our own preparations. I didn’t fill up my car, and we didn’t check our stock of Coleman stove propane canisters. By the time the forecast shifted, there was no gas to be found – for the car, for the stove – of any kind, anywhere.

Irma left us without power for 7 days. Cooking on a tiny charcoal grill in the backyard got old quickly. After 3 days, when the charcoal started getting low, the temperature inside climbed to 83 with humidity of 100, and the frozen fish was rotting, we called it quits and found a hotel with electricity that had managed to reopen.

For a Florida native, experienced with hurricanes, whose job title includes the word “planner,” it felt like I should have done better.

Lesson Learned

Next time I will pay attention to all the strings on the spaghetti model, not just the ones in the middle.

The sales tax waiver is a needed nudge for procrastinators like me. Disasters of all different sorts happen. Take advantage of the holidays to prepare yourself, and enjoy a little inflation relief.

Have you found a great deal using a sales tax holiday? Please do share by leaving a comment.

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Maximizing Donation Tax Advantages

charity walk

Maximizing donation tax advantages: Recently I answered a reader’s question on this topic at Robert Powell’s Retirement Daily website. (Link:) https://www.thestreet.com/retirement-daily/ask-bob/avoid-taxable-income-with-charitable-contributions

The question was, “How do I avoid taxable income with charitable contributions?”

This reader might have experienced deducting charitable contributions in the past (pre-2017) through itemized deductions.

Post-2017 Tax Act: Donation Tax Advantages Reduced

After 2017, the reader might have noticed they were no longer getting that deduction. Although you can still itemize charitable contributions, the standard deduction with the 2017 Tax Act became so large that, for most people, it no longer made sense to itemize. So the tax advantage to donations was reduced or eliminated for all but the highest incomes.

Advantage: 70-somethings and Older

But people who are at least 70 1/2 do retain one donation advantage. They can make a non-taxable distribution directly from their IRA. It’s called a Qualified Charitable Distribution (“QCD”). A QCD is practically the same as getting a deduction.

Further, once you turn 72, you are forced to distribute the money from IRAs. The distributions are called “required minimum distributions” or “RMD”s. These you must pay tax on. However, if you use a QCD for your RMD by distributing directly to an eligible charity, then no tax is owed on that portion. See the link above for more details on accomplishing this properly.

What questions do you have about IRA distributions? Leave a comment here, or schedule a call at this link: https://go.oncehub.com/hollypthomas

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Why am I getting a Tax Form 5498 in May?

Why am I getting a tax Form 5498 in May?You may be receiving a Form 5498 in May If you have a Health Savings Account, a Roth IRA, or other IRA. 

It might seem like you just got done receiving and compiling all your tax forms and now your financial institution sends another? Hello, isn’t that a little late? Or were they lazy because of the extended deadline this year? Do you have to call your accountant or financial planner, again?

Hold the calls. You may remember reporting to your accountant (or TurboTax) that you made some contributions to these accounts. Perhaps you made them last year, or perhaps you made them before the April 18 deadline and had them “count” for 2021.

What’s a Form 5498 for?

One purpose of the Form 5498 is for the financial institution (called a “custodian”) to verify to the IRS that you did indeed make the contribution that you claim you did on your tax return. It also tells the IRS what your Required Minimum Distribution will be for the current year, if you are over 72.

Since everyone usually has until the tax filing deadline to make contributions, the IRS usually gives custodians until May 31 to send Form 5498.

Check Form 5498 For Errors

Before you file the 5498 away, make sure it’s correct. Mistakes are common. In 2018, my husband and I both had erroneous 5498’s for our Health Savings Accounts. I made my 2017 contribution in February 2018 and he made his on an ongoing quarterly basis. Mine showed $0 contributions for 2017 and his showed 2 years’ worth. So we called the bank where they were held and got corrected ones sent to the IRS for 2018.

If your 5498 differs from what you reported on your 1040, at some point it could get noticed. One fantastic sunny day in the future, as you skip to your mailbox, you may find inside a skinny white envelope with “Internal Revenue Service” in the return address. Fantastic day ruined.

More than likely, all the letter will say is, “Hey, we noticed your 5498 doesn’t match your 1040. What gives?” But still. Save yourself the trouble of having to answer (or pay your accountant to answer for you) and do a quick check now.

It only takes a few minutes. Does your contribution amount for 2021 look correct? Did you take any 2021 HSA or IRA distributions, and if so, do those look correct? (If not, make sure the distributions say $0.) Is your SSN correct? How about your name, including your middle initial?

If anything looks amiss, contact your custodian to get a corrected 5498 issued ASAP.

One More Tax Task

By this time of year, it’s normal to feel sick of tax stuff. The last thing you may want to do is deal with another form, especially an erroneous one. If you don’t want the bother, at least forward it to your financial or tax professional to check it out and help. It’s no bother. Whether it’s May, July, January, or December – we deal with tax stuff all year long.

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Read more about the article Magic Tax Numbers for 2021

Magic Tax Numbers for 2021

Magic tax numbers for 2021: As 2021 comes to a close, it’s a good time to think about magic numbers that could affect your taxes in April. Before December 31, there might be adjustments you could make. Below are just 5 examples, but there are many more. They might be worth discussing with your CFP, CPA, or run through a tax calculator. Ask what you can do to get your income down to these magic numbers. You could save hundreds or thousands of dollars.

Magic Number 1: Income Bracket Jump

There are 7 different ordinary income brackets, but two levels that make the biggest jumps – from 12% to 22% and from 24% to 32%. For Married Filing Jointly (MFJ) those jumps occur at $81,050 and $172,750 and Single (S) at $40,525 and $86,375. An additional $1000 over these amounts means you pay either $100 or $80 in additional tax. Every additional $1000 after that incurs the same additional tax until you reach the next bracket.

Magic Number 2: Standard Deduction

The figures above are for taxable income – so, unless you itemize, you could add the standard deduction (MFJ – $25,100 or S – $12,550) on top to reach your target magic income number to avoid the big jump brackets: (MFJ – $81,050 + $25,100 = $106,150 and $172,750 + $25,100 = $197,850 or S – $40,525 + $12,550 = $53,075 and $86,375 + $12,550 = $98,925). That’s a better number to manage.

Magic Number 3: Capital Gains Bracket Jump

There are only 3 brackets for capital gains income – 0%, 15%, and 20%. The 15% bracket is really wide – (MFJ) $80,801 to $501,600 (MFJ) and (S) $40,401 to $445,850. Say you have a really low income year. Maybe you just retired but haven’t claimed Social Security yet, or for a health or economic reason you earned so much less that you are actually close to the bottom of the 15% capital gains bracket. AND you own something that has a capital gain – perhaps something you bought or inherited a long time ago. You could pay NO capital gains taxes by selling it in the year in which you have the low income. This is definitely one to run by your CPA or financial professional before making that sale, though, to make sure.

Magic Number 4: For Business Owners – QBI/199A Deduction

It’s too complex for here, but the magic numbers to keep in mind are (MFJ) – $329,800 and (S) – $164,900. If you can stay below these numbers, you might get a special extra deduction. Definitely worth it to run by a CPA to see what you can do before year-end to get this bonus.

Magic Number 5: Medicare Surcharges (Age 63 and over. Yes. 63.)

Medicare premiums have 6 brackets. Your Medicare premium for 2023 is based on your 2021 income, because Medicare looks at your tax return from 2 years prior (unless you appeal due to a life event such as retirement – more info here: https://www.aarp.org/retirement/social-security/questions-answers/medicare-premium-irmaa.html). If you turned 63 in 2021 and do not retire or have another life event by 2023, this year’s income will be what Medicare uses to assess surcharges, or not.

You pay a surcharge of $89.10/month, or $1069/year for each income bracket. In other words, going $1000 over the income bracket can cost you an extra $1069 per year.

Here are the Medicare Part B magic numbers for 2021 (at each income level you pay another $1069/year):

MFJ – $176,000; $222,000; $276,000; $330,000; and $750,000

S – $88,000; $111,000; $138,000; $165,000; and $500,000

Part D (prescription drug coverage) also has surcharges, though not as high as Part B. Avoiding the Part B brackets will also avoid the Part D surcharges.

For an excellent explanation of Medicare brackets, see Mary Beth Franklin’s article in InvestmentNews: https://www.investmentnews.com/article/20181120/FREE/181129997/medicare-high-income-surcharges-to-increase-in-2019

Now is the Time to Think About Taxes

These are just 5 magic tax numbers for 2021 to watch – other examples include optimal itemizing numbers; alternative minimum taxes; qualifying for ACA subsidies; and phaseouts for Roth IRA contributions.

Some people wait until February or March to think about taxes, when income for the prior year is already set. Instead, before the year is over, see if you can manage to hit a magic number and save a few bucks.

Schedule a 30-minute call to talk more about taxes or other money topics: https://bit.ly/3GWZNrc

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Year-End Tax Questions

Tax calendar

Year-end tax questions are those questions to ask yourself, your accountant, or your Certified Financial Planner™ this time of year. Asking the questions in early November provides time to make year-end decisions before it’s too late. Some decisions can wait until Christmas week, but several are best done with a few weeks to spare.

Generally, they fall into 3 categories:
Year to date income?
Year to date deductions? and
What to do now?

Year to Date Income?

First, figure out your year to date income. How much have you made year to date? What does it look like you will make for this year? Common items that are forgotten:

Year to Date Deductions?

Next, look at year to date deductions. Everyone gets a 2021 standard deduction of $12,550 Single/$18,800 Head of Household/$25,100 Married Filing Jointly. Other deductions to consider, or if you itemize:

What To Do Now?

Finally, the goal with tax planning is to avoid reporting taxable income that’s barely over some kind of threshold or bracket. For example, though a bit extreme: A couple in their 60s with one spouse still working and one over 65 on Medicare reports $177,000 in 2021 taxable income. This is $1,000 over the threshold of $176,000 for the first (of 6) Medicare income brackets. The additional $1,000 in income costs the couple $713 in Medicare premium surcharges in 2023. That’s a marginal tax rate of 71.3%!

If your taxable income is on a critical tax threshold, you can strategize. A few easy examples:

  • Make sure you have maxed out your retirement account contributions for the year.
  • Or, turned 50? You get an extra catchup contribution to your retirement account.
  • Turned 55? You get an extra catchup contribution on a Health Savings Account (HSA). (More info here: Why an HSA Beats an IRA Any Day)
  • If you show business income, can you defer income or accelerate expenses between December and January?
  • If you believe you are in a lower tax bracket now than you will be in retirement, and additional income won’t bump you up against any of the other thresholds, consider a Roth conversion. But do it soon. It can take several weeks to accomplish, depending upon which company holds your accounts. And year-end gets busy for these.

Charitable Giving Options

Have a Year-end Tax Planning Meeting

Consequently, meeting with your accountant or Certified Financial Planner™ now might help you discover whether you are on the border of one of the many confusing tax code thresholds. Then you can decide what to do about it before it’s too late.

Schedule a 30-minute call to talk more about tax planning or money topics: https://bit.ly/3GWZNrc

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