5 Smart Financial Planning and Tax Strategies for Year-End

5 Smart Year-End Strategies

October 8, 2021

Crisp autumn mornings serve as a reminder that now is the time to begin preparing financially for 2022. Last week, we looked at the tax hikes that could be in next year’s mix. Today, we’ll build on that and identify five strategies to set you and your family up for success in 2022 and beyond.

1. Begin with the basics. We’ve still got more than two months to review our financial accounts—focus on making sure you’ve named beneficiaries and ensure that those designations reflect your current wishes. An annual review of all of your estate-planning documents is another excellent year-end practice.

2. Consider a “mega backdoor” Roth. Here’s how it works: In 2021, individuals can contribute up to $19,500 (or $26,000 if you are 50-plus years old) to a 401(k). But if your employer allows after-tax contributions to your 401(k), you can raise your contribution to $58,000 (or $64,500 for those who are 50-plus), then roll that excess into a Roth IRA. But you may need to act fast. As we mentioned last week, this strategy may be on the chopping block as part of proposed tax hikes.

3. Defer tax losses and deductions. Year-end is a great time to harvest losses in your portfolio. When an investment position hasn’t performed well in the long term (from a tax-planning standpoint, “long term” is any position you’ve held for more than 12 months), you can deploy the losses against the highfliers to reduce your tax bill. But with tax rates potentially about to rise, the opposite can be true. Your losses might be more valuable next year to reduce income taxes at potentially higher capital gains rates.

Deferring deductions can be another smart tax strategy when tax codes are changing. The Tax Cuts and Jobs Act of 2017 (TCJA) raised the standard deduction and capped the state and local tax (SALT) deduction at $10,000, which limited how many tax filers could itemize their deductions. A higher cap or return of that deduction in 2022 means that itemizing is back on the table for a greater number of people, so it may make sense to hold off on your charitable giving until we know more.

4. Accelerate income. The opposite principle applies to income: Individuals in the highest tax brackets might consider pulling some of next year’s income into 2021 to capture the lower tax rate. Bonuses, vested but unexercised stock options (especially if you’re highly concentrated), or sales of real estate or a business are sources of income to potentially realize before Dec. 31, 2021.

5. Make gifts to use up your exemption. Finally, if you’re considering making significant financial gifts to family members, now might be the time to pull the trigger. The annual exclusion gift remains at $15,000 and education gifts or direct payments of medical expenses should remain constant in the new tax environment. That said, the current estate-tax exemption (the amount you can pass to heirs without incurring a 40% estate tax) is $11.7 million per person under the TCJA—that’s way up from $5.49 million in 2017 and $2 million in 2007! If you were already planning a large gift for family above and beyond the $15,000 annual gifting exclusion, this might be a good time to use it for a down payment, an irrevocable trust or a direct cash gift.

We will keep a watchful eye on Washington and report back with more strategies to manage through whatever new legislation comes to fruition. Until then, contact your Adviser Investments team if you think one or more of the strategies above applies to you. We’re The Planner You Can Talk To and always here to help!


This material is distributed for informational purposes only. The investment ideas and opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

Our statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged.

Past performance is not an indication of future returns. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Personalized tax advice and tax return preparation is available through a separate, written engagement agreement with Adviser Investments Tax Solutions. We do not provide legal advice, nor sell insurance products. Always consult a licensed attorney, tax professional, or licensed insurance professional regarding your specific legal or tax situation, or insurance needs.

Companies mentioned in this article are not necessarily held in client portfolios and our references to them should not be viewed as a recommendation to buy, sell or hold any of them.

© 2021 Adviser Investments, LLC. All Rights Reserved.

Adviser Investments' logo is a registered trademark of Adviser Investments, LLC.