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Get to Know Me Monday #8 - Year End Tax Planning

Today I am talking about year-end tax planning.  As we approach the end of the year, there may be a few things you can do to reduce your 2021 tax bill. Whether a particular strategy works for you depends on your specific situation as well as pending changes in the tax law.

Are you able to itemize your deductions?

When the standard deduction increased substantially in 2019 (to $24,000 for Married Filing Joint) along with the miscellaneous deductions such as unreimbursed employee expenses being eliminated, and capping of the SALT at $10,000,  many no longer had enough deductions to itemize. 

If you are close but just under the limit to itemize, bunching deductions may work.  For example, if you typically give $5,000 to charities and your itemized deductions of State and Local Tax (SALT), Mortgage Interest and Charitable total $21,000, you can’t itemize.  However, if you bunch your charitable deductions (prepay next year’s donations in December this year), you can itemize in the current year.  If you continue this strategy, then you can plan to itemize every other year, and take the standard deduction on the interim years.  The charity gets the same amount overall.

                        Typical Year                Year that you “bunch”   Off Year    

SALT                   10,000                       10,000               10,000

Mortgage Int         6,000                         6,000                 6,000

Charitable             5,000                       10,000                    0

Total                    21,000                       26,000               16,000

There is proposed legislation in the Build Back Better Act to increase the SALT tax cap to $80,000 which would allow even more people to itemize deductions and allow strategies to include prepaying state and local estimates as well as real estate taxes in the “bunching” of deductions.

Charitable Donations

For 2021, even if you don’t itemize,  taxpayers, including married individuals filing separate returns, can claim a deduction of up to $300 for cash contributions to qualifying charities. The maximum deduction is $600 for married individuals filing joint returns.

Taxpayers who itemize can generally claim a deduction for charitable contributions to qualifying organizations. The deduction is typically limited to 20% to 60% of their adjusted gross income and varies depending on the type of contribution and the type of charity. For 2021, the law now allows taxpayers to apply up to 100% of their AGI.  This can help with the tax planning and “bunching” of deductions discussed above.

The 100% limit is not automatic; the taxpayer must choose to take the new limit for any qualified cash contribution. Otherwise, the usual limit applies.

Contribute to a retirement plan or health savings account.

Fortunately, the deadline to contribute to an IRA or H.S.A. for 2021 in not until April 15, 2022.  This allows tax preparers to calculate if you can contribute to such plans and how much federal and state tax it will save by contributing.

There are specific rules to be eligible to contribute to these plans.

You can only contribute to a Health Savings Account if you meet the following guidelines:

  • Are covered under a qualifying high-deductible health plan which meets the minimum deductible and the maximum out of pocket threshold for the year

  • Are not covered by any other medical plan, such as that for a spouse

  • Are not enrolled in Medicare

  • Are not enrolled in TRICARE or TRICARE for Life

  • Are not claimed as a dependent on someone else's tax return

  • Are not covered by medical benefits from the Veterans Administration

  • Do not have any disqualifying alternative medical savings accounts, like a Flexible Spending Account or Health Reimbursement Account

There are a variety of rules covering the eligibility to contribute to an IRA. I’m just going to highlight a few considerations. Check with your tax preparer for specifics for you or contact me.

  • You must have earned income (there is a provision for a spousal IRA if one spouse does not work).

  • While most people can contribute to a traditional IRA, the contribution may not be tax deductible. This depends on if you are covered under another retirement plan and income limitations.

  • A Roth IRA does not reduce your current year tax, but the earnings can grow tax-free. There are income limitations for eligibility to contribute to a Roth IRA.

  • For 2020 and later, there is no age limit on making regular contributions to traditional or Roth IRAs.

  • For 2021, the total contributions you make each year to all your traditional IRAs and Roth IRAs cannot exceed $6,000 ($7,000 if you're age 50 or older).

Are you over 70 ½?  A Qualified Charitable Distribution (QCD) may save you federal and possible state tax. It also counts towards your Required Minimum Distribution.

Generally, a qualified charitable distribution is an otherwise taxable distribution from an IRA (other than an ongoing SEP or SIMPLE IRA) owned by an individual who is age 70½ or over that is paid directly from the IRA to a qualified charity. Your qualified charitable distributions can satisfy all or part the amount of your required minimum distribution from your IRA.


These are just a few ideas of some ways to save taxes for 2021. I can’t cover every opportunity or scenario in a brief blog. If you would like to discuss your specific planning opportunities, now is the time to schedule your appointment. There are some changes to Ohio income tax this year that I will post later this week.

Blog Archive

Please note: Some material may be time-sensitive and may no longer apply.
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