You might be thinking, “wait, it’s not even 2022; do I really have to start thinking about taxes now?” The answer is yes! Why? Beyond just being more organized, you need to worry about more deadlines than April 15th alone.
Secure finances rely on taking advantage of as many tax incentives as you can, and if you value every dollar in your bank account, it’s worth doing a little year-end tax planning for yourself and your business.
Take Care of Estimated Taxes
If you have income that is not subject to tax withholding, your deadline for filing 2021’s 4th quarter estimated tax to the IRS is January 18th, 2022. This income could be from side jobs, perhaps if you got paid to mow a lawn, record a voice-over, or build a birdhouse.
You may have also gotten money from investments or through a small business you own. Start budgeting and set aside money to pay estimated taxes for state income taxes.
Tax Loss Harvesting
If you have stocks or other investments that are currently at a loss, consider selling them to offset any investment gains. You can also claim up to $3,000 of the loss against your ordinary income. One thing to note, however, is that you’ll need to avoid buying back the stock for at least 30 days.
Financial Planning for Retirement
Like in a football game, the fourth quarter can be the time to rally for people taking early retirement. Take a look at your taxable income for the year. If you’re young enough to retire but not old enough to get Social Security payments, your taxable income might be artificially low.
That sounds like good news, right? Well, yes, kind of, but what you want to do is take some of that money in your traditional retirement accounts and move them to Roth accounts in a process called Roth conversions. If the money is left in accounts with deferred tax payments, You could end up paying far more in taxes later.
This approach is called “tax gain harvesting,” a technique where you can take advantage of being in a 10 to 12 percent tax bracket so you can avoid potentially paying higher taxes when the IRS forces you to take required minimum distributions (RMDs). The end of the year is the best time to do this. Talk to a skilled financial planner to set it all up correctly.
Required Minimum Distributions
As long as we’re discussing retirement accounts, if you’re 72 years of age or older, RMDs apply to you. The deadline for withdrawing an RMD is December 31st, and if you don’t do it by that point, you could be subject to a 50 percent penalty of the RMD amount. RMDs also apply to many inherited accounts, regardless of whether the beneficiary is 72 or younger.
Increase Payments
Do you want to reduce self-employment taxes? A little transparency here; no one wants to pay taxes if they don’t have to. If you pay off business expenses before January 1st, especially if you’re self-employed or a small business owner, then you could reduce not only self-employment but income taxes, as well.
Also, if you ramp up charitable giving, perhaps moving bonds, mutual funds, or stocks to a donor-advised fund, you could eliminate a capital gain and get a current year deduction.
Win at Taxes with Mash Financial Planning
Sometimes you just need to talk to an expert. That’s why we’re here! Mash Financial Planning wants you to keep as much of your money as possible. We know taxes and use that knowledge every day to help our clients. We want to help you, too. Talk to Mash Financial Planning today and win at taxes!