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Winter is Coming : 6 tax lowering strategies to consider before the end of the year.

Winter is Coming : 6 tax lowering strategies to consider before the end of the year.

November 14, 2021
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As we prepare to roll out the feasts, wrap the presents, and reunite with kith and kin, Santa isn't the only one coming to town.  The Tax Man Cometh too and that chills me to the bone way more than any freezing 70 degree Tucson Winter Day possibly could.  But there are several things that can be done to possibly file down his teeth a bit.

Max out your 401k - If you are still working and contribute to a 401k and won't max out the $19,500 (and a "catch up" of $6500 for those of us over 50) with the current contribution percentage you're currently contributing and if you can afford it, consider significantly increasing your December contribution.  Just don't forget to drop it back down in January.  You may also want to check with your HR department to make sure the change to the contribution will take place fast enough to get the increase activated for December.

Turn unrealized losses into realized losses - If you have any investments that are in the red, consider selling them to realize the loss.  You can reduce your ordinary income by $3000 and offset any capital gains with capital losses. Although I caution against making an investment decision based on tax considerations alone, this may be a valuable part part of a comprehensive strategy.

Donate appreciated assets to charity - If you have an investment that has done really well you might want to consider donating it to a charity and avoid the capital gains you would have to pay if you sell the security.  It also leverages your giving.  Consider if you originally invested $1000 and it is now worth $10000 and you give that to security to charity it cost you $1000 but the charity absolutely gets the use of $10000.  

Use your IRA Required Minimum Distribution (RMD) to fund your charitable Giving - If you send your RMD directly to a charity, you will not pay tax on the distribution.  

Bunch your charitable donations - Now that the standard deduction has increased, some people can't itemize their deductions any longer making it difficult to write off your donations to charities.  By "bunching" your donations you may be able to deduct your contributions.  Bunching or Bundling refers to making several years of charitable donations all in one year to get the amount up to were your itemized deductions exceed the standard deduction.  Along those lines, there is an investment vehicle called a Donor Advised Fund.  This is a pretty cool investment.  It allows you to make a big contribution in any given year into the program which will then be invested into mutual funds.  You take the tax deduction in the year you make the contribution into the fund but then you can use that fund to pay charities whenever you want for many years to come. 

Arizona Residents, don't forget to take advantage of the State Tax Credits for charitable donations - You can receive a dollar for dollar credit from Arizona for donations to Qualifying Charitable Organizations (QCOs) and School Tuition Organizations (STO's).

If you want to talk about any of these strategies, give me a call or send me an email.  And, lets make sure to include your tax professional in the conversation because taking advantage of some of these strategies can be a little tricky.