This is the time of year to do some year end tax planning and implement some of those ideas before December 31st. With tax law changes looming from congress there are some things that may be implemented retroactively to Sept 14, 2021 and others that are expected to change January 1, 2022, but here are some things to take advantage of now for tax savings in 2021.
Child and Dependent Care Tax Credit
The child and dependent care credits were increased from 35% to 50% and the credit is allowed for up to $8,000 in expenses for one child/disabled dependent or $16,000 for more than one. In the case of an FSA account, the limits were increased to $10,500.
Donor Advised Funds
Consider gifting appreciated stock to a Donor Advised Fund to tax advantage of a charitable deduction of the fair market value while also not recognizing the capital gain. You can also gift the appreciated stock directly to a specific charity for the same treatment. Initiate the transactions by December 1st to be sure they close by the end of the year.
Check your pay stubs to ensure that you are maximizing your annual 401(k) contributions before year end. Roth IRA and Traditional IRA contributions can be made now through the filing deadline, April 18, 2022.
Health Savings Accounts
Confirm you have maximized your 2021 annual HSA contribution limits; $3,600 for individuals, or $7,200 for family coverage (which includes married filing joint filers with separate accounts).
Tax Loss Harvesting
Speak to your financial advisor about selling underperforming (loss) long term capital gain stocks to offset your short-term capital gains which are taxed at a higher rate. Long term capital losses can rollover to offset gains in future years.
Working from home expenses
If you file as a Sole-proprietor/Schedule C, consider the home office expense for an area of your home that is used exclusively for business purposes to offset your self-employment income.
If you are employed by a closely-held S-Corp, consider a reimbursable plan to pay individuals for their home office expenses.
Plug in vehicle credits
Federal credits are still available for a variety of car manufacturers; look them up here. Consider purchasing the plug-in vehicle by 12/31 to claim credits up to $7,500 on your 2021 tax year.
Through 2022, you are able to earn a credit for 26% of your solar installed on your primary residence. The credit is scheduled to reduce to 22% in 2023.
The 2021 gift tax limit is $15,000. This is a great way to transfer wealth in incremental amounts to your beneficiaries. Also consider gifting appreciated stock to those in lower tax brackets, but be aware of kiddie tax rules for minors or student dependents.
Additionally, you can superfund a 529 plan by gifting 5 years’ worth of annual gifts at once. With the gift tax limit expected to increase to $16,000 in 2022, it might be worthwhile to hold off until January 1st on this one.
Contact our team for a year end planning meeting to discuss strategies specific to your unique tax situation.
Dana R. Borys, an Accountancy Corporation is a boutique tax consulting, compliance, and representation firm working with affluent individuals and owners/officers/founders of start-up/emerging growth companies. Building connections beyond the code.