While it is still possible that tax law changes may still come before the end of the year, they’re not here yet. Therefore, you have time to plan for next year’s taxes before the end of this one! With possible new legislation on its horizon – who knows what’ll happen? However, your friends at Maggi Tax thought it was worth giving the reminder of just how important getting our financial houses in order can be during these times ahead.
Whether or not there are any significant rule changes at all (and if so, when), there is no time like now to make sure you are getting all the tax breaks you can. It’s important to examine different ways you could save money on taxes by looking at your income and investment gains/losses with the time left in this year.
One great way to ensure that you’re taking the proper steps for your future and legacy is by consulting with an experienced Maggi tax advisor. We can help you assess what would be best in terms of gifting away assets during your lifetime or after you have passed. We can also discuss inheritance and estate planning strategies that may need to be changed due to new laws. Some other areas that we can help you examine include:
Harvesting tax losses is a great way to offset any gains that you may have while remaining true to your investment goals. In addition, this will allow for more stability in the markets and less risk of losing everything if something goes wrong. So, sell down those assets with decreasing prices before they hit rock bottom and take time to rebalance your portfolio.
Now is the perfect time to review your retirement contributions and make sure you’re on track. You can contribute up until the maximum allowed, which will lower your taxes owed.
Employees may contribute a maximum of $19500 into 401k plans (those over 50 get another $6.5K) and IRA’s permit up to $6,000 annually. Those aged 50+ are also eligible for an additional “catch-up” provision that allows them to deposit an extra thousand dollars annually.
FLEXIBLE SPENDING ACCOUNTS
Make sure you spend down your flexible spending accounts (FSA) and dependent care savings accounts before the deadlines. The IRS recently announced that they would be extending some deadlines due to COVID-19, allowing employers and employees more time before any funds are lost. This is excellent news for those who still have money left over.
With that being said, your employer will decide whether or not these provisions are something they care to enact, so it’s essential for you to check with your human resources department about how long you have left to use your current FSA balance.
Charitable giving is always popular, but it can be a pain in the neck if you’re unsure what to give. Donor-advised funds (DAFs) make charitable donations easy and allow for immediate tax benefits. If eligible this year, consider making your donation through one of these accounts, which will enable you to maximize how much money goes towards specific causes while reducing stress during tax season too
To take the deduction for charitable donations, checks for contributions must be postmarked before Dec. 31 of this year for a 2021 designation. If you make your donation by credit card, it will be official as soon as the charge is processed.
It may also be worth considering donating appreciated capital gains assets instead of cash. By giving these appreciating assets to a charity, you are now able to take the tax deduction on the current value of the asset, even when your original investment may have been less.
In the 2021 tax year, each taxpayer can gift $15,000 to an unlimited number of recipients tax-free without having to file a return. For instance, a couple who is married with two children and four grandchildren might choose this as their way out – gifting around $180K per year would save them more than 72k annually on estate taxes! A strategy of using annual gifting can be a great way to systematically transfer wealth out of your estate and save on taxes.
It is difficult to know what changes will be in store for the upcoming tax season. Therefore, don’t try to navigate the incredibly complicated tax code alone. We are here to help. You can rest easy when working with one of our Maggi Tax experts on your tax planning strategy. So, don’t delay, call us today!