Good afternoon

I hope you are getting ready to wind down 2021 and are getting ready to usher in a promising 2022 (which, we hope, will be a bit less eventful and will bring us all some needed calm).

To help start the year off right, I’ve put together 7 last-minute tips to help you close out 2021 properly.

1. Contribute to Your Kids’ 529 Account

New York allows married parents to deduct up to $10,000 per year for 529 contributions and single parents to deduct up to $5,000. If you don’t use this deduction, you lose it, so it’s best to make a contribution each year.

  • As a parent of a child who is applying to colleges this year, I can tell you that having contributed every year over the past 18 years to her 529 account makes the cost of college much more manageable for us.

2. Maximize Contributions to Your 401(k) Account

December 31 is the last day to make contributions to your 401(k) account for 2021. IRA contributions can be made up until April 15.

3. Cut Your Losses

This year has seen a lot of changes for stocks, and you may want to rebalance your portfolio. Now is a good time to review your asset allocation with your advisor. While you may decide to sell stocks that have significant gains, selling some losing stocks to offset gains can lower your tax bill.  You can also deduct up to $3,000 in net capital losses against ordinary income each year.

4. Annual Gifting

If you have a taxable estate (over $6MM if living in NY State, over $12MM under federal law), you may wish to take advantage of the annual federal gift exclusion by making gifts of up to $15,000 per beneficiary. These gifts do not count against your federal lifetime gift and estate tax exemption. In order for the gift to count for 2021, the check must clear by December 31.

5. Avoid/Minimize the Net Investment Income Tax

The Net Investment Income Tax (NIIT) imposes a 3.8% surtax on certain investment income for taxpayers with Adjusted Gross Income that exceeds $250,000 (for jointly-filing married taxpayers) or $200,000 (single taxpayers). Income subject to the tax includes capital gains, dividends, interest, rental income, and royalties. Keep this tax in mind in deciding whether to sell stocks towards the end of the year. Selling losing positions (see above) can help to minimize the NIIT.

6. Taking Your Required Minimum Distribution (RMD)

If you are age 72 or older, you must take your required minimum distribution (RMD), based on the total value of your traditional IRAs and 401(k)s, by December 31. Be careful. If you miss the deadline, the penalty is 50% of the amount that should have been withdrawn. If you turned 72 this year, there is an exception; you can delay taking your RMD until April 1, 2022.

7. Prepaying Expenses to Increase Your Tax Deductions

Prepaying property taxes, mortgage payments, medical bills or estimated state or local income taxes may give you additional itemized deductions that can reduce your taxable income.  In addition, the Tax Cuts and Jobs Act provides reduced tax rates for small businesses (earning less than  $329,800 for joint filers in 2021) organized as pass through entities (partnerships, S corporations, LLCs, LLPs and sole proprietorships). Prepaying or accelerating business deductions may help you reduce your taxable income and qualify you for lower tax rates.

8. (yes, it’s an extra one)  Review Your Will – to see if anything needs updating!

The end of the year is always a good time to review your estate planning documents to see if any changes need to be made. Are your guardians still in good shape? Do you still trust who you appointed as your Power of Attorney? Did you get married? Did you have a new baby? Are you now retired?  Have you invested in Crypto / NFT / Metaverse?  If any of these have changed, let’s get that taken care of ASAP.

As always, feel free to contact me if I can be of assistance.

I hope you are enjoying the holidays!

All my best,

Katya Sverdlov, CFA, Esq.
Sverdlov Law PLLC
30 Wall Street, 8th Floor
New York NY 10005
Phone: 212-709-8112
YouTube: Short Videos

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