10 Quick Year End Tax Planning Tips for 2021

Following are a few steps to consider before year end.

1) Prepay property taxes and prepay state estimated taxes before year end. These tried and true deductions no longer apply in many cases. The reason is two fold. First many individuals will no longer itemize deductions because of the higher standard deductions ($25,100 for married taxpayers filing jointly, $18,800 for head of household, and $12,550 for others ). Secondly deductions for state, local and property taxes are limited to an aggregate of $10,000. So this planning tool only works if you will be itemizing and if your current state, local and property taxes are less than $10,000. Prepaying will only provide a tax benefit up to $10,000. IE if currently a taxpayer has $6,000 of property taxes and $2,500 of states taxes it will only help to prepay $1,500 or if property taxes are $8,000 and state taxes are $3,000 there will be no tax benefit to paying before year end. If the Build Back Better Act passes as is the amount of state, local and property taxes that will be allowed as a deduction will increase to $80,000.

2) Donate to charity before the year end if you will itemize deductions. Contributions up to $300 ($600 if married filing jointly) may be deducted even if you do not itemize. This applies to cash donations not donations of non cash goods. Contributions paid by credit card before year end are deductible even before you have paid the credit card bill. Once again remember the higher standard deductions when considering this.

3) Donate non cash goods before year end. If the total is over $500 special reporting requirements are required (Form 8283).

4) If you have capital gains consider selling stocks that have lost money to offset these gains.

5) Defer income into the next year if possible.

6) Accelerate business deductions by paying before the end of 2021 if you have net business income.

7) Take full advantage of 401K plans and IRA deductions.

8) Pay college tuition before year end if you have not reached the maximum allowed for deductions and credits.

9) If you have a gifting strategy make sure all gifts are made before the year end. An individual can gift $15,000 tax free to each recipient.

10) Time is short, tax law can be complex and there is the uncertainty to consider. Consult your accountant for professional advice.

Contact Murphy, Powers and Wilson for Certified Public Accounting services.