5 possible year-end tax saving strategies investors could make before December 31st 2021

 In year end tax planning

Marketwatch contributor Harriet Edleson published an interesting article listing out a few strategies that taxpayers can use to save money on their 2021 taxes. 

We have a little over 3 weeks left until we ring in the new year, and this is a good time to review and see if there are any last-minute financial moves you can make to lower your tax liability for this coming 2021 tax season. Roger Young, senior retirement insights manager at T. Rowe Price told Marketwatch, “take a look at your tax situation, what your tax picture looks like for the year, what is your taxable income likely to be?”

Even if you have a solid CPA and financial advisory helping you with tax planning throughout the year, (which is recommended,)  there are still ways to save money on your 2021 taxes. Yet, in some cases, you must act by Dec. 31. keep in mind that it might be cutting a little close for being to take advantage of all these techniques, but nonetheless, The MarketWatch article covers 5 tax-saving strategies, and here are some steps to take before Dec. 31.

1 Take your required minimum distribution (RMD) 

If you have reached age 70 ½ in 2020 or later, you must take your first RMD by April 1 of the year after you reach 72, according to the IRS. In most instances, you have to begin withdrawing funds from your traditional IRA, SEP-IRA, SIMPLE IRA, or retirement plan account. Otherwise, RMDs begin at age 70 ½. 

The Setting Every Community Up for Retirement Enhancement Act of 2019 (the SECURE Act) changed the age from 70 ½ to 72. You can plan or take the withdrawals before the end of 2021. The penalty for not taking your RMDs in time is steep: 50% of the amount not taken on time.   

2 Max out your contributions to an employer-sponsored 401(k) plan

The 401(k) contribution limit is $19,500 for 2021. If you are 50 or older, you can also make an annual catch-up contribution of up to $6,500 before Dec. 31. 

Some employers allow you to put some or all of a year-end or holiday bonus into your 401 (k) so ask your company benefits manager if that is permitted, says Greg McBride, senior vice president, chief financial analyst, for Bankrate.com.  

3 Consider a Roth IRA conversion

Converting a traditional IRA to a Roth IRA must be completed by Dec. 31. What is important to note is that you cannot reverse it once to make the conversion.  And the Marketwatch article points out that if you are not yet taking RMDs, consider converting a traditional IRA to a Roth. Wade Pfau, an economist, stated that “a Roth conversion is most beneficial if you expect that your requirements on distributions in retirement (RMDs) might be in a higher tax bracket than your current bracket,” The Roth conversion can reduce the amount of RMDs in the higher bracket later, Pfau says.

In general, if you are in a relatively low tax bracket this year because you are in phased retirement or working a part-time job, and haven’t yet claimed your Social Security retirement benefits, it can be time to consider converting a traditional IRA to a Roth IRA as well.  

4 Check your capital gains (and losses) for 2021

Mr. Young of T. Rowe Price told MarketWatch, “in a year like this when markets have done very well, you may not have losses, you might have some gains, and it might be harder to find those losses.” He went on to further explain that “tax-loss harvesting might be hard to do.” 

This might be a time to sell securities at a profit. “If you haven’t taken your Social Security, before Dec. 31, 2021, look at what your (income) tax bracket is or might be” for 2021, says Schwab’s Williams. Ask yourself, “How much room do I have before I hit the next tax bracket?”

If your earned income is lower than it might be in the future, this can be a good time to take some of those earnings. 

Rob Williams, managing director of financial planning and retirement income, Schwab Center for Financial Research told Marketwatch. “people don’t like to pay tax before they have to, but sometimes it’s advantageous. If you have lower taxable income, pay tax now to give yourself the flexibility of not having to pay any (tax) or paying more tax later.”

For long-term capital gains, the tax brackets will be either 0%, 15%, or 20%, depending on your earned income.  For a single tax filer, earning $40,400 or less or for married joint tax filers earning $80,800, or less you’ll be in the 0% tax bracket for long-term capital gains. (Long-term capital gains are investments you’ve held for more than a year.)   

5 Consult with a professional CPA tax adviser before Dec. 31

No one can predict how the stock market will perform, but investors and individuals do have some control over planning for taxes. Mr Williams, from Schwab, says “don’t wait until the year is over to speak to a tax adviser. You have to make these sales before the year ends.”

The Marketwatch article further explains that if you sell equities within a retirement account and leave the funds in the account, it’s not a taxable event.  

Yet, within a brokerage account, if you want to lower your concentration of a particular stock, and you sell a stock such as Tesla or Amazon, you may have to pay capital gains tax on the earnings. It will depend on your earned income level. 

 Mr. Williams, further stated that “if you’re in a lower tax bracket than you might be later, you could sell and pay some tax on it, don’t let paying taxes stop you from doing it.” 

You can reinvest the money. If you have some losses, you can do what is called tax-loss harvesting. You can sell a stock at a loss and another for a gain to offset the loss as a way to reduce your tax liability. You can use the loss to reduce your capital gains. In addition, if your capital losses are greater than your capital gains, you can sometimes offset up to $3,000 of ordinary income. Consult with your tax adviser. Also, see IRS Topic No. 409.  


Waiting until the end of the year to max retirement accounts may not work for a 401k, but can easily be done for an IRA.  however, the best time to contribute is when the market is low & one can take advantage of the quarterly and/or annual distributions that increase one’s shares. None of the retirement accounts trigger taxable dividends & capital gains.  Yes speaking to a tax advisor by 12/31 is good.  however, it might be cutting it a little too close, to be able to make the significant moves as mentioned above.   Talking to a tax advisor should begin earlier in the year so you can look at the market & make the appropriate moves earlier. If have any questions feel free to contact Huckabee CPA for a free consultation.


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