At ARQ Wealth Advisors we are a comprehensive financial management firm, and we focus on going above and beyond to help clients not only with financial management tips, but also to include tax planning, estate planning, and other key areas that are strongly linked to financial management.
Year-end can be an extremely stressful time, especially in the tax and estate planning portion of your life as key deadlines exist. Unfortunately, if someone isn’t aware of these key deadlines, they can run into challenges down the road that may hinder their retirement and financial goals. As we near year-end to wind down 2021, we wanted to share some of our expert insights in the form of a quick checklist to explain what you should look out for to best prepare for year-end deadlines.
If you would like to sit down with one of our comprehensive financial advisory experts, we are offering a free no-cost no-obligation financial plan to help understand your retirement goals and to get you on track to work towards those financial goals. You can click here to learn more about our free offer or you can give us a call at (480) 214-9572.
Item 1 – Review Withholding and Correct Underpayments
Withholdings are the amount that was withheld by your employer for tax purposes that would go straight to the local, state, and federal governments. The system is not perfect and depending on how you make your income (from an employer, self-employed, etc.) you may have not paid the correct amount that you owe to the various government entities.
Review withholding and make any necessary adjustments, including estimated tax payments. Increasing withholding can correct underpayments retroactively. The IRS lumps all withholding payments together and treats them as though they were made in equal parts across all four quarters.
Item 2 – Review Retirement Contributions – IRA’s, 401(k)’s and Other Qualified Retirement Plans
As various retirement plans have a max amount that you can contribute to each year, if you do not make those key contributions before year-end then you will have missed out on that opportunity. It’s important to review which type of retirement accounts that you have in the first place to know the amount that you may be allowed to contribute to them.
The maximum tax-deferred contribution to a 401(k) retirement plan is $19,500 for individuals under age 50 in 2021. Individuals who are 50 or older by the end of the calendar year can make additional “catch-up” contributions of up to $6,500, for a total of $26,000 in 401(k) contributions.
Total allowable contributions made to all IRA’s is $6,000 for individuals under age 50 in 2021. Individuals who are 50 or older by the end of the calendar year can make additional “catch-up” contributions of up to $1,000 (total of $7,000).
Item 3 – Evaluate Charitable Contributions
The average American does not realize that they can deduct charitable contributions that they made throughout the year. We recommend tracking all charitable donations made for your records.
Under the Consolidated Appropriations Act (CAA) passed in December 2020, an above the-line deduction for cash charitable contributions of up to $300 (or $600 for joint filers) is allowed for taxpayers who take the standard deduction 2021.
Item 4 – Maximize HSA Contributions
For Americans that have a Health-Savings Account (HSA), which is a tax-advantaged medical savings account that is made available to those that are enrolled in a high-deductible plan, there are limits on the contributions that you can make throughout the year depending on the age bracket that you fall into.
Maximum allowed contributions are $3,600 for an individual or $7,200 for a family in 2021. Individuals who are 55 or older by the end of the calendar year can make additional “catch-up” contributions of up to $1,000.
Item 5 – Verify IRA Distributions
For those located in the United States who paid into an Individual Retirement Account (IRA), there are steep penalties that can be incurred if you do not start taking distributions out of those accounts as you reach certain age thresholds. The required minimum distribution (RMD) age is now age 72. Ensure distributions are made by year-end to avoid the 50% IRS penalty.
Item 6 – Review Year-End Gifting Limits
There is a set amount that an individual may gift to any other individual without any estate or gift tax consequences. Knowing the exact limit here can help avoid unnecessary taxes. The annual gift tax exclusion amount remains unchanged at $15,000 in 2021, and married couples can double that to $30,000. These tax-free gifts can be a useful estate planning tool.
Item 7 – Understand Social Security and Medicare Taxes
In 2021, individuals will be taxed 6.2% in Social Security taxes, up to $142,800 of earnings, at which point there are no additional taxes. Medicare taxes are applied to 1.45% of earnings and there is no maximum wage cap. An extra 0.9% may be applied on the earnings over $200,000 for single filers and for joint filers earning over $250,000. Some of these limits may change via legislation during the year.
Item 8 – 529 Plans
Earnings accumulate tax-deferred; qualified withdrawals (such as tuition, fees, supplies, books, and required equipment) may be free of federal and state income taxes. There are no income, state-residency, or age restrictions. Plans may be funded up to the annual exclusion amount, $15,000 (single) or $30,000 (married) per year per donation recipient. Aggregate contribution limits vary by state — roughly $200,000 to $500,000 per beneficiary.
Item 9 – Child Tax Credit
The way the child tax credit payments will be divided between 2021 and 2022 might be confusing. For each qualifying child age 5 and younger, up to $1,800 (half the total) will come in six $300 monthly payments this year. For each kid between the ages of 6 and 17, up to $1,500 will come as $250 monthly payments six times this year.
The IRS bases your child’s eligibility on their age on Dec. 31, 2021, so a 5-year-old turning 6 in 2021 will qualify for a maximum of $250 per month. For both age groups, the rest of the payment will come with your 2021 tax refund when you claim the remainder of the credit in 2022.
Dependents who are 18 years old, they can qualify for $500 each. Dependents between the ages of 19 and 24 may qualify as well, but they must be enrolled in college full time.
Item 10 – Tax Loss Harvesting
Review and evaluate harvesting losses to offset realized capital gains and/or $3,000 of ordinary income. Even if an individual doesn’t currently have any gains, there are benefits to harvesting losses now, since they can be used to offset income or future gains.
Item 11 – Review Beneficiary Designations and Estate Planning Documents
It’s always a good idea to review beneficiary designations after a major life event, such as marriage, divorce, the birth or adoption of a child. Regular reviews are also a wise decision simply because a person may have changed their mind since first naming your beneficiaries.
At ARQ Wealth, we fully understand that this checklist can be overwhelming if you haven’t been aware of these items in the past. We are currently offering a free no-cost no-obligation financial plan to help individuals and families have a better understanding of how to create their financial and retirement roadmap.
This will be a comprehensive review that will also analyze the previously mentioned items to ensure you are put in the best possible position to work towards your retirement and financial goals.
Interested in learning more? You can learn more about this free offer here at our website or give us a call at (480) 214-9572.