Year End Tax Planning for 2021
While we don't have a crystal ball available to predict 2022 federal tax rates, we do expect Congress to look for ways to fund the Covid relief provisions of 2020 and 2021. That pressure on Congress to regain lost revenues makes increased tax rates in 2022 and future years a strong possibility.
With future tax increases on the horizon, it may be advisable for certain taxpayers to accelerate income and/or reduce certain expenses for the 2021 taxable year.
Here are some ways to accelerate taxable income as of 11/29/21 (the Build Back Better (BBB) Bill, H.R. 5376, has passed the House):
- Consider converting from a traditional IRA (funded with pre-tax dollars) to a ROTH IRA (funded with after-tax dollars) to avoid paying a higher rate on funds distributed in the future. Consult your tax professional for information on details of your situation. (This conversion option is eliminated in the BBB bill for contributions made after 12/31/21).
- Increase your required minimum distributions from retirement accounts.
- Recognize gains on any appreciated assets now.
- Defer asset purchases or elect straight-line depreciation for any large purchases
Be sure to discuss any tax strategies with your advisor to make sure they apply to your unique situation.