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:

Holly Donaldson

Holly Donaldson, CFP® runs an hourly and fee-for-service financial planning practice virtually from her Tampa Bay, Florida office. She also works with clients throughout the U.S. (except Texas) interested in retirement and tax planning advice without product sales or investment management. Holly is the author of The Mindful Money Mentality: How to Find Balance in Your Financial Future (Porchview Publishing, 2013) and publisher of the award-winning monthly e-letter, "The View From the Porch."

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