Thanksgiving is next week, there’s already Christmas music on the radio, and Christmas and New Year’s are only a hop, skip, and a jump away, which means the end of the year is fast approaching! That also means the end of the 2021 Tax Year is fast approaching. So, we’ve got four year-end tax considerations for you to consider.
The first one is if you have any capital losses this year, or if you’re carrying over any losses from a prior year, look to do some tax-loss harvesting. This is where you may sell some holdings (stocks or mutual funds) that have capital gains in this year and have those losses that you’re carrying forward offset those gains, so that you don’t have any sort of taxable event. It’s important to note that this is only for taxable accounts, not for any type of retirement accounts.
The second one is if you are close to taking the itemized deduction versus the standard deduction, as we get towards the end of the year think about doing some charitable contributions to get you over that bump. This also means you might need to take a look at your taxes to see how close you are and where you stand in that threshold of taking standard versus itemized deductions. If you find that you are close to itemizing and your charitably inclined, make sure to get those charitable contributions in to get yourself over the bump.
The third consideration is if you were looking to do any sort of IRA contribution, it’s a good idea to get that in before the end of the year. Technically, you have until April to get prior year contributions in but, if you’re trying to defer taxes and get the deduction, the sooner you can defer those taxes and let the IRA grow, the better. So why not get those IRA contributions in before the end of the year and also help reduce your income at the same time?
And, the fourth thing is if you’ve inherited any sort of retirement account, depending on your claiming strategy, you may have until the end of the year to take out any RMD’s (Required Minimum Distributions). This also rings true for anybody who is over 70 ½, or 72, depending on when you were born. You also have until the end of the year to take your RMD’s out of any retirement accounts without seeing some sort of penalty.
Those are just four quick things for you to think about as we get towards the end of the year when we’re looking and thinking about taxes. If you have any questions on what some of these considerations may mean in more detail, or how to navigate them a little bit more, you can always reach out to us here Next Step. We will walk you through that process and figure out the best step forward for you. Y’all have a great Thanksgiving!