Year-End Decisions

Wow! 2021 has been a whirlwind… sometimes literally in paper. It seems we have had a new proposal almost every day from lawmakers. Social Security alone has been addressed in 10 different bills this year. And taxes? Keeping up with introduced or impending changes is a full-time job.

The good news is that we are starting to gain some clarity… well, for 2021 at least.

Joking aside, we do have some clarity around certain hot-topic items and our goal for today is to hit the priority list. What do you need to know or, do or not do before the ball drops on 2021 and 2022 begins?

#1…Roth Conversions…If you haven’t already considered whether or not you should move money from a pre-tax IRA or other retirement account to a Roth IRA, which could grow and be tax-free in the future, you need to do it now. Tax rates will remain at historical lows in 2021, but this may not stay the case moving forward. And the “Build Back Better Act” could limit or eliminate the opportunity to make conversions (especially back-door conversions) for high income earners.

#2…Crypto Taxes…If you actually have losses in Crypto right now, you can sell your position, then turn around and buy another crypto position all while still realizing the loss on your tax return. For the rest of the investment world, that maneuver is called a wash-sale, wherein an investor takes a loss and repurchases a similar or same security within 30 days. The House bill adds digital assets to the prohibited list after December 31^st.

#3…Net Investment Income Tax & Business Owners…This 3.8% tax may be hitting business owners making over 400 or 500K, who are not paying self-employment taxes. If you haven’t already discussed strategies around your business structure or getting your income below the threshold, don’t wait until you are looking in hindsight. Often little to nothing can happen at this point. Start planning now.

#4…Corporate Taxes…21% corporate tax rates are untouched at current, but this doesn’t mean lower taxes. The BBB bill has two proposals in this regard—a 15% minimum tax on a laundry list of past credits and deductions that are available and a 1% excise tax on a corporation buying back its own stock.

#5…Retirement Savings Plans…Many people are maxing out their retirement plans this time of year, and many of them probably should. However, Uncle Sam will get you going if he doesn’t get you coming. Where do you believe are going? Is saving taxes today worth the bill later? Or is there a better way? Between the Secure Act that passed at the end of 2019 and the Build Back Better proposal, “big” retirement accounts are becoming more and more unattractive. You need to know what you don’t know if this is news to you.

#6…Give it away…Don’t forget to have a plan for your charitable gifts. Otherwise, you may never see a deduction. A cash gift may not be the best gift. Donating appreciated securities will save you the taxes that you would pay if you otherwise sold the security…  and you could get the donation (depending on…well, a lot of things). Qualified Charitable Distributions are often great for people over age 70. These are IRA distributions sent straight to a 501(c)3. Depending on your situation, this could not only help you avoid taxes on IRA distributions, but could lower the amount of Social Security that is taxed and your Medicare premium.

#7…Kick the Can on Your Estate Plan…After all the hoopla, there is not a lot that appears to be changing for the moment. The current proposal doesn’t change the estate tax exemption amounts, the 1031, step-to in basis rules, grantor trust laws or gifting laws. This is great news for Christmas—you can breathe and so can your heirs! Warning: There was a ton of legislation proposed this year that would completely change the landscape when transferring your assets to the next generation. Just because it isn’t in the current bill, doesn’t mean it disappeared off the horizon. Make your legacy plan your first priority in 2022 if you haven’t already.

Complexity is growing every day in every corner. We are here to help you navigate through it. Don’t hesitate to let us help do the heavy lifting, so you can stay focused on what is most important and live Life on purpose!