As 2021 draws to and end, you may want to take this opportunity to take a look at your tax planning strategy. If you have any questions, please feel free to contact us for guidance. Here are four year end tips to consider
- Max out retirement plan contribution
Depending on your specific financial situation, you may want to think about putting some extra money into your 401(k), IRA, ROTH, Solo K, etc. For most plans we have until December 31st to make contributions, and in some situations contributions can be made until April 15th. If you’re looking for a way to lower your current or future tax bill, this is a great place to start.
- Make ROTH Conversions
Unlike traditional individual retirement accounts and 401(k) plans that are funded with pretax dollars and taxed at your ordinary income tax rate when you make withdrawals, Roth accounts are funded with after-tax money and grow tax-free, and you pay no taxes when you take out the money. With this in mind, it may be beneficial to convert some of the funds in your IRA account into your ROTH account. This may be a great way to pay some taxes now, to save in the future.
- Careful with Cryptocurrencies
If proposed tax changes in the Build Back Better Act are passed, crypto investors could be hit with the “wash sale rule” next year. That rule says that if you sell an investment at a loss and buy back an asset that is the same or substantially identical within a 30-day period, you are not allowed to claim that loss. If you hold a position that is currently at a loss, selling them and buying them back may help you claim those losses.
- Look into I Bonds
Inflation seems to be on everyone’s mind in recent days. If your worried about inflation you may want to look into I Bonds. These are inflation-protected assets that are paying a 7.12% annual rate through April. You are limited to 10,000 annually.