What has changed for you in 2021?

For some, this year has been as complicated as learning a new dance. Did you start a new job or leave a job behind? That’s one step. Did you retire? There’s another step. If notable changes took place in your personal or professional life, then you may want to review your finances before this year ends and 2022 begins. Proving that you have all the right moves in 2021 might put you in a better position to tango with 2022.

From a financial standpoint, even if your 2021 has been relatively uneventful, the end of the year is still an excellent time to get cracking and see where you can optimize your overall personal finances.

Keep in mind, this article is for informational purposes only and is not a replacement for real-life advice. Please contact us or directly consult your tax, legal and accounting professionals before modifying your tax strategy.

Do you engage in tax-loss harvesting?

This is the practice of realizing capital losses (selling securities for less than what you first paid for them) to manage the tax implications of capital gains. You might want to consider this move, but it should be made with the guidance of a financial professional you trust. The Buttonwood Team is ready to assist, contact us today.

You could even take it a step further. Remember, up to $3,000 of capital losses in excess of capital gains can be deducted from ordinary income. Any remaining capital losses above that amount can be carried forward to offset capital gains in upcoming years.1

Do you want to itemize deductions?

The standard deduction for the 2021 tax year has risen to $12,550 for single filers and $25,100 for joint. The additional standard deduction amount for anyone who is 65 or older is $1,350. Biden Administration has proposed lifting the federal state and local taxes deduction cap to $80,000 from $10,000 through 2031. 2

Depending on the actions of Congress in December, if you think it might be better for you to itemize due to higher eligible deductions than the standard deduction, now would be a good time to gather the receipts and assorted paperwork.3,4  

Are you thinking of gifting?

How about donating to a qualified charity or non-profit organization before 2021 ends? Your gift may qualify as a tax deduction. Individuals can now claim a limited deduction up to $300 ($600 for married filing jointly) for cash contributions made to qualifying organizations.5 For some gifts, you may be required to itemize deductions using Schedule A.6  

While we’re on the topic of year-end moves, why not take a moment to review a portion of your estate strategy? Specifically, look at your beneficiary designations. If you haven’t reviewed these designations for some time, double check to confirm assets are titled to go where you want them to go in the event you pass away. Lastly, look at your will and/or trust to make sure the terms are still appropriate and up to date.

Check on the amount you are having withheld from your various income sources. If you discover you have withheld too little, you may need to adjust this withholding before the year ends, or plan on making an estimated tax payment in January 2022.

What can you do before ringing in the New Year? 

New Year’s Eve may put you in a dancing mood, eager to say goodbye to the old year and welcome 2022. Before you put on your dancing shoes, though, consider speaking with a financial or tax professional. Do it now, rather than in February or March. Small end-of-year moves might help you improve your short-term and long-term financial situation.