End-of-the-Year Money Moves in 2021

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 look place in your personal or professional life, then you may want to review your finances before this year ends and 2022 begins. Insuring that you have all the right moves in 2021 might put you in a better position to tango with 2022.

Even if your 2021 has been relatively uneventful, the end of the year is still an excellent time to get going and see where you can manage your overall personal finances.  

Keep in mind that this article is for informational purposes only and is not a replacement for real-life advice. Please consult your tax, legal and fee-only financial planning professionals before modifying your tax strategy.

Do you engage in tax-loss harvesting?

That’s the practice of taking capital losses (selling securities for less than you paid for them) to manage capital gains. You might want to consider this move, but it should be made with the guidance of a financial professional you trust.¹  

In fact, you could even take it a step further. Consider that up to $3,000 of capital losses in excess of capital gains can be deducted from ordinary income, and any remaining capital losses above that amount can be carried forward to future tax years to offset capital gains.¹

Do you want to itemize deductions?

Consider taking the standard deduction for the 2021 tax year, which has risen to $12,550 for single filers and $25,100 for joint. That amount is more than most people can take for itemized deductions.  If you think it might be better for you to itemize, however, now would be a good time to gather the receipts and assorted paperwork, or plan end of year giving.^2,3

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. Up to $300 of cash donations to qualified charities for single taxpayers and $600 for married filing jointly may be deducted, even though you claim the standard deduction.  If you give more than that, you will be required to itemize deductions using Schedule A in order to deduct the full amount.⁴

What can you do before ringing in the New Year? 

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

Check on the amount of taxes which have been withheld from your salary. If you discover that you have withheld too little on your W-4 form so far, you may need to adjust this withholding before the year ends. 

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 fee-only financial planning or tax professional. Do it now, rather than in February or March. Small end-of-year moves can save on your tax bill and help you improve your short-term and long-term financial situation.