End of the Year Moves for 2021

Posted by: Joseph Kuo | November 16, 2021

For some, this year has been as complicated as learning a new dance. Making the right financial moves at the end of 2021 can put you in a position to tango in 2022.

Tracking your financial moves can feel like a complicated dance. Did you get a new job this year? That’s a jump to the left. Did you start a new business, switch careers or retire? Then that’s a step to the right.

If  notable changes look place in your personal or professional life, then you may want to review your finances before this year ends and 2022 begins. Proving that you have all the right moves in 2021 might put you in a better position to tango with 2022. Even if your 2021 has been relatively uneventful, the end of the year is still an excellent time to get cracking and see where you can manage and improve your overall personal finances.

Keep in mind that this article is for informational purposes only and is not a replacement for real-life advice. Please consult your tax, legal and accounting professionals before modifying your tax strategy.

Do you engage in tax-loss harvesting?

That’s the practice of taking capital losses (selling securities for less than what you first paid for them) to manage capital gains on your profitable stock transactions this year. You might want to consider this move, but it should be made with the guidance of a financial professional you trust.

In fact, you could even take it a step further. Consider that up to $3,000 of capital losses in excess of capital gains can be deducted from ordinary income, and any remaining capital losses above that amount can be carried forward to offset capital gains in upcoming years.

Conversely, if you expect your income this year to be lower due to a job loss or career change, you can “harvest” capital gains. In this case, you sell investments with gains because you will pay relatively lower taxes this year as compared to a year with a normal/higher level of income. You can even take the opportunity to convert some of your IRA savings to Roth. The amount you convert is taxed as ordinary income but, once that savings has been transferred to a Roth IRA, it won’t be taxed again. If this is your situation, definitely consult with a trusted financial professional to maximize your harvest.

Do you want to itemize deductions?

You may want to take the standard deduction for the 2021 tax year, which has risen to $12,550 for single filers and $25,100 for married taxpayers filling jointly. If you think it might be better for you to itemize your deductions, now would be a good time to gather the receipts and related paperwork and make that determination now, which will take one major decision off of your plate once it’s time to file your tax return.

Are you thinking of gifting?

How about donating to a qualified charity or non-profit organization before 2021 ends? Your gift may qualify as a tax deduction. For some gifts, you may be required to itemize deductions using Schedule A. For those with stocks or securities which have appreciated in value, instead of making a straight cash donation you can consider donating those stocks directly. If you donate a stock or security to a qualified organization or charity, you can claim the deduction based on the current market value of the stock and avoid capital gain taxes because you didn’t sell the stock.

If you choose to itemize deductions, donations of physical items to a qualified charity or non-profit may also count towards your itemized total. Aside from improving your itemized totals, you will also directly benefit a cause you care about.

Estate Review

While we’re on the topic of year-end moves, why not take a moment to review a portion of your estate strategy? Specifically, take a look at your beneficiary designations for your insurance policies and retirement accounts. If you haven’t reviewed these designations for some time (or since you opened those accounts), double check to see that these assets are still set up to go where you want them to go.

Lastly, if you have a will, do a review to make sure it is still valid and up-to-date. If you don’t have a will yet, this might be a good opportunity to start working on one.

Tax Withholding

Check on the amount you have withheld for your federal and state taxes. If you discover that you have withheld too little (or too much) on your W-4 form so far, you may need to adjust this withholding before the year ends. The earlier you check your withholding, the bigger difference an adjustment on your W-4 will make.

When you file your return, the IRS can levy a tax penalty if your withholding amount was too small compared to the amount due on your return, so either adjusting the withholding or pre-paying some of your taxes can head off this potential pitfall.

What can you do before ringing in the New Year?

New Year’s Eve may put you in a dancing mood, eager to say goodbye to the old year and to welcome in 2022. Before you put on your dancing shoes, though, consider speaking with a financial or tax professional. An experienced financial planner can take a look at your financial picture and come up with additional recommendations unique to your situation  that you might not have thought of. Do it now, rather than in February or March when you will be rushed and might miss something.

As Spring is considered an ideal time to clean your home, the end of the year is the ideal time to do a clean up of your finances. Improving your finances is all in the details. Small end-of-year moves might help you improve your short-term and long-term financial situation.

To talk with an experienced financial advisor about a strategy for your end of year finances, contact me via email at joseph@abundancewp.com, or schedule a meeting by clicking the button below:

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