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Checklist for Year-End Planning

Checklist for Year-End Planning

December 09, 2021
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The holidays are always hectic but consider carving out some time for year-end financial matters. A number of questions about proposed changes in the tax code have come our way. As the Build Back Better Act winds its way through Congress, early proposals have fallen by the wayside.

Changes in individual income tax rates, increases in rates for long-term capital gains, and updates to estate taxes seem unlikely to be enacted into law.  But we may see a big increase in the cap for state and local tax (SALT) deductions, and a surtax for those with very high incomes may land in the tax code. As currently proposed, a 5% surtax would apply to individuals with income over $10 million, increasing by an additional 3% above $25 million.

There is also bipartisan support for updates to retirement rules—what’s being called SECURE Act 2.0. Recently, however, the legislation has lost momentum, as Congress deals with tight deadlines on taxes and new spending.   Let’s not jump too far into the future. Perhaps the SECURE Act 2.0 will pass next year. Comprehensive bills take time, even if support is bipartisan. Instead, let’s focus on tying up loose ends as the year comes to a close.

Before we jump into our year-end planning piece, I want to stress to you that it’s our job to partner with you. I can’t overemphasize this, and I would be happy to review your options. As with any tax matters, feel free to consult with your tax advisor.

8 end-of-year tax facts and tips to save you money

  1. Tax brackets have changed. Every year, the tax brackets for taxable income are adjusted for inflation. Table 1 illustrates the marginal tax bracket based on taxable income - after all deductions.

Table 1: Tax Brackets for 2021 – stay tuned for the 2022 figures


For Single Individuals

For Married Individuals Filing Joint Returns

For Heads of Households


Up to $9,950

Up to $19,900

Up to $14,200


$9,951 to $40,525

$19,901 to $81,050

$14,201 to $54,200


$40,526 to $86,375

$81,051 to $172,750

$54,201 to $86,350


$86,376 to $164,925

$172,751 to $329,850

$86,351 to $164,900


$164,926 to $209,425

$329,851 to $418,850

$164,901 to $209,400


$209,426 to $523,600

$418,851 to $628,300

$209,401 to $523,600


$523,601 or more

$628,301 or more

$523,601 or more

  1. Standard deduction increased for tax year 2021. The standard deduction for married couples filing jointly for tax year 2021 is $25,100, up $300 from the prior year. For single taxpayers and those married filing separately, the standard deduction is $12,550 for 2021, up $150. For heads of households, the standard deduction is $18,800, up $150.

  2. Child Tax Credit has changed. Each qualifying household is eligible to receive up to $3,600 for each child under 6, and $3,000 for each child between 6 and 17. You may receive half of the new credit between July and December 2021 and the remaining half in 2022, when you file a tax return. Even if you don’t owe any federal taxes, you may still be eligible for the credit. If you have no income, you may still receive the credit.

    The credit gradually declines starting at income of $75,000 for individuals, $150,000 for married couples, and $112,500 for heads of household. While the increase in the credit is currently temporary and only for 2021, just-passed legislation in the House preserves the credit for 2022, with advance monthly payments of $300 for a younger child and $250 per older child for all of 2022.  
  1. Limitations on itemized deductions. If cash expenses that are eligible to be itemized fail to top the standard deduction, skip Schedule A and take the standard deduction. It’s that simple. If you itemize, please be aware that state and local income taxes, property taxes, and real estate taxes are capped at $10,000. Anything above cannot be written off against income.  However, the IRS does grant a workaround for some taxpayers. Taxpayers that use pass-through entities, including S-corporations, may benefit.  It’s a complex maneuver, but one that’s being offered by more states. For 2022, the cap may rise and be subject to income limits. We’ll revisit this next year.

    For charitable contributions, subject to certain limits, taxpayers who itemize may generally claim a deduction for charitable contributions made to qualifying charitable organizations.

    These limits typically range from 20%-60% of adjusted gross income (AGI) and vary by the type of contribution and type of charitable organization.

    For example, a cash contribution made by an individual to a qualifying public charity is generally limited to 60% of the individual’s AGI. Excess contributions may be carried forward for up to five tax years.  If you don’t itemize, a new deduction up to $600 is available for cash donations in 2021.

    The IRS also allows taxpayers to deduct the total qualified unreimbursed medical expenses for the year that exceeds 7.5% of their AGI. You must itemize to take advantage of this deduction.
  1. Estates of decedents who die during 2021 have a basic exclusion amount of $11,700,000. The annual exclusion for gifts is unchanged at $15,000 for calendar year 2021.

  2. The maximum credit allowed for adoptions for tax year 2021 is the amount of qualified adoption expenses—$14,440, up from $14,300 for 2020.

  3. Changes to the AMT. Trump-era tax reform failed to do away with the alternative minimum tax (AMT), but it snags far fewer people.

    The AMT exemption amount for tax year 2021 is $73,600 and begins to phase out at $523,600 ($114,600 for married couples filing jointly for whom the exemption begins to phase out at $1,047,200). It’s confusing, but most tax professionals will run both calculations for you.
  1. Take advantage of a 20% deduction for business owners. The law provides “pass-through” business owners, such as sole proprietorships, LLCs, partnerships, and S-corps, a 20% deduction on income earned by the business.

    This is a valuable benefit to business owners who aren’t classified as C-corps and can’t benefit from 2018’s reduction in the corporate tax rate to 21% from 35%. Individual taxpayers and some trusts and estates may be entitled to a deduction of up to 20% of their net qualified business income (QBI) from a trade or business, including income from a pass-through entity.

    In general, anyone with total taxable income in 2021 under $164,900 single or $329,800 joint qualifies. The deduction does not reduce earnings subject to the self-employment tax. Some taxpayers with income exceeding the above limits may qualify subject to certain payroll and capital investment testing, or at least they may qualify for a partially phased out deduction.

    There are limitations to this deduction and some aspects are quite complex so you should check with your tax advisor to see how you may qualify.

The points above are simply a summary of some of the items you should keep in perspective.

Now let’s review some potential planning opportunities and actions.

9 smart planning moves to consider

  1. Review your income or portfolio strategy. Are you reaching a milestone in your life such as retirement or a change in your personal circumstances? Has your tolerance for taking risk changed? If so, let’s make adjustments to your financial plan. 

    When stocks tumble, some investors become very anxious. When stocks post strong returns, others feel invincible and are ready to load up on riskier assets.

    Remember, the financial plan is your roadmap to your financial goals. It is designed to remove the emotional component that may encourage us to buy or sell at inopportune times. In other words, be careful about making portfolio decisions based solely on market action.

    Long-term academic data and experience tell us that the shortest distance between an investor and his/her financial goals is adherence to a well-diversified portfolio, supported by a holistic financial plan.
  1. Rebalance your portfolio. Stocks have performed well this year. We are evaluating equity exposure and in some cases may trim back risk. However, we are mindful of the potential tax impact in non-retirement accounts.

  2. Take stock of changes in your life and review insurance and beneficiaries. Let’s be sure you are adequately covered. At the same time, it’s a good idea to update beneficiaries if the need has arisen.

  3. Note the tax loss deadline. You have until December 31 to harvest any tax losses. It may be advantageous to time sales in order to maximize tax benefits this year or next based on the situation.

    But be aware that short- and long-term capital gains are taxed at different rates. And don’t run up against the wash-sale rule (see IRS Publication 550), which could disallow a capital loss.

    Did you know that if you are (roughly) in the 12% income tax bracket or lower your long-term capital gains could be taxed at 0? It may be worth harvesting a long-term capital gain. In other words, you may sell the stock, take the profit, and pay no federal income tax. But be careful.

    The sale will raise your adjusted gross income, which means you’ll probably pay state income tax on the long-term gain. By raising your AGI, you could also impact various tax deductions or receive a smaller ACA premium tax credit if you obtain your health insurance from the Marketplace.
  1. Mutual funds and taxable distributions. This is best described using an example.

    If you buy a mutual fund on December 15 and it pays its annual dividend and capital gain on December 20, you will be responsible for paying taxes on the entire yearly distribution, even though you held the fund for just five days.  It’s a tax sting that’s best avoided because you likely didn’t participate in much of those taxable gains. It’s usually a good idea to wait until after the annual distribution to make the purchase in a taxable account.
  1. Required minimum distributions (RMDs) are minimum amounts the owner of most retirement accounts must withdraw annually.

    The SECURE Act made major changes to RMD rules. Before the SECURE Act, you were required to take your first RMD after reaching age 70½ by April 1st of the following year. This rule still applies to those born before June 30, 1949. For those born on or after July 1, 1949, you must take your first RMD by April 1 of the year after you reach 72. For all subsequent years, including the year in which you were paid the first RMD by April 1st, you must take the RMD by December 31st.

    While delaying the RMD until April 1st can cut your tax liability in the current year, please be aware that you’ll have two RMDs in the following year, which could bump you into a higher tax bracket. The RMD rules apply to all retirement savings accounts and annuities, including profit-sharing plans, 401(k) plans, 403(b) plans, 457(b) plans, traditional IRAs, and IRA-based plans such as SEPs, SARSEPs and SIMPLE IRAs. Some workplace plans may provide exceptions if you are still working, and these rules do not apply to Roth IRAs.

    Whichever course of action you choose, don’t miss the deadline or you could be subject to a steep penalty.

    Lastly, the SECURE act changed the rules for inherited IRAs and most heirs now only have 10 years to withdraw the full account balance. Accounts inherited from decedents who passed prior to 2020 are grandfathered under the old rules and can continue taking “stretch” RMDs over their life expectancy.
  1. Contribute to a Roth IRA or traditional IRA. A Roth gives you the potential to earn tax-free growth (not just tax-deferred growth) and allows for federal-tax free withdrawals if certain requirements are met. You may also be eligible to contribute to a traditional IRA. Contributions may be fully or partially deductible, depending on your income and circumstances. If your income doesn’t exceed certain limits and you qualify, total contributions for both accounts cannot exceed the prescribed limit, of $6,000, or $7,000 if you’re age 50 or older.

    You can contribute if you (or your spouse, if filing jointly) have employment income. Starting in 2020 and later, there is no age limit on making regular contributions to traditional or Roth IRAs. As of now, you can make 2021 IRA contributions until April 15, 2022 (Note: statewide holidays can impact final date. 

    College savings. in most (but not all) circumstances, a 529 plan is the best way to save for college – it allows for relatively high contributions, and earnings are not subject to federal tax when used for the qualified education expenses of the designated beneficiary. Keep in mind that contributions are not federally tax deductible, but some states allow for a limited tax deduction.

  2. Charitable giving. Whether it is cash, stocks, or bonds, you can donate to your favorite charity by December 31, potentially offsetting any income in the same tax year. Did you know that you may qualify for what’s called a qualified charitable distribution "QCD” if you are 70½ or older?  A QCD is tax-free distribution from an IRA or inherited IRA that is paid directly from the IRA to a qualified charity. A QCD may be counted toward your RMD up to $100,000. If you file jointly, you and your spouse can make a $100,000 QCD from your own IRAs. This becomes even more valuable in light of tax reform as the higher standard deduction may preclude you from itemizing.

    You might also consider a charitable donor-advised fund (DAF) to “bunch” charitable donations in a given tax year, while retaining flexibility of timing the actual gift to the end charity. You can generally realize immediate tax benefits on the full deposit into the DAF, but as the donor, you can “advise” the fund when the distribution to a qualified charity may be made. For an added tax bonus, fund the DAF with appreciated securities to avoid future capital gains.

I trust you’ve found these planning tips to be helpful, and we are always here to assist. Please feel free to reach out if you have any questions and check in with your tax advisor. Now let’s talk about the markets.

Alphabet soup

A sharp acceleration in economic growth, increasing worries about inflation, a dovish Fed, and a strong stock market were quickly displaced by news of a new Covid variant on Black Friday.

Dubbed Omicron and labeled a variant of concern by the World Health Organization, it was first spotted in South Africa and sent shudders through global markets on Black Friday. Of course, it is not the first variant to trouble the world. Covid cases have already spiked with the highly contagious Delta variant.

The Alpha variant spread into the U.S. early in the year but is of less concern today. The Beta, Gamma, Epsilon, Eta, Lambda, Mu and other variants have not caused much concern among investors amid the growing use of vaccines and therapeutics. This is critically important to the economy and investors, as these tools have been used in place of economically destructive lockdowns and restrictions.

That said, Omicron is a not-so-subtle reminder that the ever-changing pandemic remains a health threat. And the recent market volatility stems from worries over the new variant’s unknown impact on the global and U.S. economy. That volatility appears to be brought on by its apparent ease of transmission and anxieties that current vaccines and therapeutics may be less effective against Omicron. But early reports suggest milder symptoms.

However, I must stress that these are early reports, and little is known about the new variant. Perhaps, the latest volatility could subside if additional bad news isn’t forthcoming, or updates to vaccines and treatments prove to be effective.  Let me also add that FedSpeak at the end of November intensified selling. “At this point, the economy is very strong and inflationary pressures are higher, and it is therefore appropriate in my view to consider accelerating the taper of asset purchases... perhaps a few months sooner,” Fed Chief Jerome Powell said November 30 before a Senate committee.

In early November, the Fed said it would begin tapering its $120 billion in monthly bond purchases by $15 billion per month in November and again in December. Economic conditions would dictate the pace in 2022. Though inflation has been high over the past year, the Fed has been slow to react. As we enter December, Powell has opened the door to a faster taper, which could advance the Fed’s timing of its first-rate hike.

I trust you’ve found this review to be educational and helpful. Once again, let me remind you that before making decisions that may impact your taxes, you should consult with us and with your tax advisor.

If you have any questions or would like to discuss any matters, please feel free to give me or any of my team members a call.  As always, I’m honored and humbled that you have given me the opportunity to serve as your financial advisor.

Table 2: Key Index Returns




Dow Jones Industrial Average



NASDAQ Composite



S&P 500 Index



Russell 2000 Index



MSCI World ex-USA**



MSCI Emerging Markets**



Bloomberg US Agg Total Return



Source: Wall Street Journal,, MarketWatch, Bloomberg
MTD returns: Oct 29, 2021-Nov 30, 2021
YTD returns: Dec 31, 2020-Nov 30, 2021
**in US dollars