Tax Planning Made Easy

Believe it or not, we are only one month away from the tax filing deadline! With that in mind, we figured it would be beneficial to discuss some last minute 2021 tax planning ideas as well as one that could help you out when it comes time to file 2022 taxes.

Three Ways to Maximize your Tax Planning

Since 2021 is complete, much of your tax return is already set in stone. But there are still some actions you can take to improve your tax picture in 2021 and/or beyond.

1. Check to make sure you have maxed out retirement account contributions available to you. For those under 50 years of age, a maximum of $6,000 can be contributed to Traditional or Roth IRAs. Married spouses can contribute $6,000 to each spouse’s IRA even if one spouse does not work.

As long as there is enough earned income in the household, both spouses can make the maximum contribution. As always, a Traditional IRA will reduce your tax burden in the current year’s taxes while Roth IRA contributions will be taxed up front but grow tax-free from that point forward.

If you are unsure which option to choose, reach out to your advisor and we can walk through the decision together.

2. Have you maxed out your 2021 Health Savings Account? Health Savings Accounts (HSA) can accept contributions up to the tax filing deadline. The primary purpose of an HSA is to provide tax-advantaged saving for medical expenses. However, these accounts will often have investment options available within them that could allow you to utilize the HSA as a pseudo-retirement account. There is a likelihood that you will have medical expenses during retirement—and if you do, you can make a tax-free withdrawal from the HSA to cover those.

Even if you stay completely healthy the rest of your life, once you reach age 65 the HSA is treated very similarly to a Traditional IRA from a tax standpoint. Be sure you are eligible for HSA contributions (you need to be covered by a high deductible health insurance plan), but as long as you check the boxes an HSA contribution is a great way to set additional dollars aside for the future while giving you a tax break today.

3. A tax advantaged option for individuals who are charitably inclined. You may be familiar with the tax deduction available for charitable giving. However, a lesser-known strategy allows you to gift shares of appreciated stock (or mutual funds) from your nonqualified investment account in order to avoid paying taxes on the gains while still deducting the entire market value of the gift.

If you have positions with large capital gains and are planning on making charitable contributions in 2022, it may be beneficial to gift some of those shares to your chosen organizations rather than writing a check. To be sure that there is no net negative impact on your investment portfolio as a result of the gift, the cash that would have otherwise gone to the organization(s) would instead be directed into your investment account to replenish what was gifted.

This can be a complex strategy so feel free to reach out to your advisor to discuss how you might benefit.

Tax season may not be your favorite time of year, but some last-minute actions can help reduce your tax bill now. It’s not too early to begin looking toward the future either.

Your team at Creekmur Wealth Advisors is here to help choose tax advantaged strategies that are best for you.