What has changed this year?
For some people, 2021 has been as difficult as learning a new dance. Did you begin a new job or move on from your old one? There’s one step. Is this the year you were able to retire? That’s another step. If significant changes took place in your life, personal or professional, then you ought to review your finances before 2021 ends and next year begins. Proving that you have all the right moves this year might put you in a better position to tango with next year.
What if you didn’t have any notable changes in 2021? Despite the fact that your year may have been rather uneventful, the end of the year is always a great time to take a step back and see where you can make changes to better manage your personal finances overall.
As you read on, remember that this article is for informational purposes only and it is not a replacement for real-life advice. Always consult your tax, legal and accounting professionals before making any changes to your tax strategy.
What is tax-loss harvesting? It’s the practice of taking capital losses (when you sell securities for less than what was initially paid) to manage capital gains. Let’s take it a step further. Did you know that up to $3,000 of capital losses in excess of capital gains can be deducted from ordinary income? And did you know that any remaining capital losses above that amount can be carried forward to offset capital gains in upcoming years?1 All of this could be really helpful for some, but you shouldn’t make these moves without the guidance of a trusted financial professional.1
For the 2021 tax year, the standard deduction has risen to $12,550 for single filers and $25,100 for joint. Making the decision on whether it would be more beneficial for you to itemize or take the standard deduction seems like a daunting task. Take a breath and begin gathering the receipts and assorted paperwork.2,3 Having everything together will make the process much easier when tax time comes.
Have you been thinking of donating to a qualified charity or non-profit organization prior to the end of 2021? Your gift might qualify for a tax deduction. Keep in mind, some gifts require you to itemize deductions using Schedule A.4
Check on the amount you have withheld from your paychecks and distributions. If you learn that you have withheld too little, you may want to adjust this withholding before the year ends.
While we’re on the topic of end of year moves, you should take a moment to review a portion of your estate strategy. Specifically, double-check your beneficiary designations. If you haven’t assessed your beneficiary designations for some time, take a look to see that your assets are structured to go where you want them to go. Additionally, read your will to ensure it is still valid and up-to-date.
What can you do before ringing in the New Year?
New Year’s Eve puts us in a dancing mood, eager to say goodbye to the old and welcome in the new. Before you strap on your dancing shoes, though, consider speaking with a trusted financial or tax professional. Get it out of the way now, rather than waiting for February or March. Small end-of-year moves may help you improve your short-term and long-term financial situation.