With Washington debating tax changes, here are a few topics we are reviewing with our clients.
There have been many different versions of the pending tax changes proposed by Congress. Without the finalized laws in place, we are working with our clients to make them aware of the potential end-of-year changes that could present planning opportunities.
Anytime the tax landscape changes, opportunities arise to plan for and prior to the new tax year. With Washington still debating the new tax plan, we have already spoken to many of our higher-earning clients with complicated tax situations about potential strategies.
If you have not spoken with your advisor about end-of-year planning strategies, these are a few areas we are focusing on more than usual this year.
For investment accounts that are not a part of your retirement plan, the taxes you pay on any gains or losses are called capital gains. Currently, long-term capital gains rates are very favorable. With nothing finalized from the Federal Government regarding the 2022 tax plan, we are still in a holding pattern.
The proposals have all varied in levels. Some have caused more issues in certain areas such as commercial real estate and how they treat capital gains.
With current capital gains rates at historically low levels, many expect an increase in capital gains tax rates moving forward. We are waiting until the tax plan is finalized.
Additionally, we have seen large gains in many of the non-retirement accounts we manage. We may take those gains earlier than initially planned for clients who have planned for distributions in 2022. This decision is based on your financial situation, your individual tax situation and your investment portfolio.
Many of the proposed changes in the tax landscape could potentially affect the charitable giving tax deductions. Notably, if proposed tax increases on charitable giving deductions pass, it could shape how you choose to donate in the coming year.
Our clients are charitably inclined and supporting so many great organizations because of the important work they do. We try to help them make those contributions to take full advantage of the tax impact of those contributions.
Some questions you may want to ask:
- Is it time to explore starting a family foundation?
- Are you using your required minimum distributions and donating them directly to the qualified charity you support?
- Are you getting the most deductions you can get from your philanthropic efforts?
- Has your overall financial situation changed and is it time to be more purposeful with your giving?
The end of a tax year is always a great time to review these questions and make the adjustments for your personal situation.
Required Minimum Distributions
Required Minimum Distributions rules have changed and there are discussions of further changes in Congress.
First and foremost, have you taken your Required Minimum Distributions for 2021 yet?
If you turned 72 by December 31, 2021 and you have not taken your RMD or are not sure if you have, consider this your reminder. Luckily, you have until April of 2022 to get it done. How you take those required minimum distributions can impact your tax situation. Have you considered gifting your RMD’s to a charity? We can show you the tax impact and how it may impact your situation.
Maxed Contributions & Deductions
Tax changes or not, your contributions for your retirement accounts should be reviewed annually to make sure you are taking advantage of all that is out there.
The amount you can contribute adjusts regularly. Be sure you are not using 1995 contribution limits for your nondeductible IRA.
Does a Roth Conversion make sense in your situation? If your income changes, it can also have an impact on which retirement contributions are the best for your situation. For many business owners, we are able to help them make adjustments to their current retirement plan to increase the tax impact this year while helping themselves contribute more.
As the 2022 tax plan takes shape, we will keep you updated with ideas that may be able to help your financial situation. If you ever want to chat about your situation with us, we would love the opportunity to discuss some ideas. We are passionate about simplifying the financial lives of our clients so they can focus on what really matters in life.
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.
Distributions from traditional IRAs and employer-sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% IRS tax penalty. Converting from a traditional retirement account to a Roth retirement account is a taxable event. A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59½ or due to death, disability, or a first time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes