Year-End Tax Strategies

Presents aren’t the only thing that needs wrapping up in December; it’s also the perfect time of year to make sure your financial strategy is in place! And that includes tax minimization tactics. Here are some ideas on how to minimize taxes.


Gift Money to the People You Love:

Not only is giving money away a great way to minimize future estate taxes, but it’s also an excellent gift for a friend or family member in need. The IRS allows individuals to give away up to $15,000 (or $30,000 for couples) to as many people as they want without requiring them to file a gift tax return. If you give a higher amount to any one person, you will need to file a gift tax return. There are ways to give more than $15,000 a year without filing a gift tax return. In certain circumstances, larger gifts to pay for someone else’s medical bills or tuition and contribute to a qualified charity are also possible.1


Donate to a Charitable Organization: 

If there’s a cause you’re passionate about, donating to a charitable organization is a great way to show support and earn tax deductions. To be eligible for this year’s tax return, charitable donations must be made by the end of the year. Taxpayers who do not itemize may deduct up to $300 (individual) in cash donations in 2021; married couples filing a joint return may deduct up to $600. The following contributions do not qualify under this provision:

  • Carried forward from previous years
  • To a donor-advised fund
  • To a private foundation
  • To a charitable remainder trust

Taxpayers who do itemize may claim up to 100% of their adjusted gross income in cash contributions in 2021.2


RMD Gifts:

IRA owners over 72 can avoid paying taxes on their annual required minimum distribution (RMD) by making a qualified charitable distribution (QCD) instead. Investors can instruct the IRA custodian to transfer assets directly to one or more qualified charitable organizations in order to help avoid tax liability for both the account and the charity.3

  • The annual amount for this tax strategy may not exceed $100,000.
  • If the charitable donation is equal to or higher than the RMD, the mandate is met.
  • Assets donated are not reported as taxable income.
  • The taxpayer does not have to itemize — thus taking advantage of today’s higher standard deduction.
  • QCDs may begin at age 70 ½ (you do not have to wait until age 72).


Harvest Capital Gains and Losses:

If your stock portfolio has performed well this year, it might be time to harvest your capital gains and losses. Harvesting gains allows you to rebalance your asset allocation strategy and stay on track for long-term goals.

Selling stocks that have not performed well allows you to use those losses to offset your tax bill on any gains you cashed in. When your capital losses are higher than your capital gains for the year, you can deduct up to $3,000 to reduce your taxable income and even carry over excess losses to next year’s tax return. However, note that if you plan to harvest gains and losses, transactions need to be completed by Dec. 31.4 You may be tempted to sell some of your under-performing stocks and then buy more shares of them while prices remain low. Just be aware that you are not allowed to purchase “substantially identical” securities

within 30 days of the original sale. If you do, you won’t be able to claim the deduction for those losses. Also, note that the wash-sale rule may apply to the sale of index funds or exchange-traded funds based on the same index.


Take your Full RMD:

Even if you don’t need retirement account assets to support your lifestyle, it’s important to take your RMDs (or employ the QCD technique described earlier) by Dec. 31 each year. Any amount not withdrawn that is less than the required distribution will be subject to a 50% penalty.5

One way to help avoid RMDs — and their requisite tax bill — is to roll over (401(k)) or convert (traditional IRA) your retirement funds to a Roth IRA before you turn age 72. In fact, rather than face a huge tax bill on a big conversion done all in one year, it’s a good idea to begin moving

portions over several years while you are still working and can pay the tax with your current income. Because a Roth IRA does not require mandatory distributions, your assets may continue growing undeterred, and you’ll never have to pay

taxes again on the money withdrawn. Upon your death, even your designated beneficiary(s) may be able to receive Roth assets with no income tax liability.6


Max It: 2021 Contribution Limits:

If you haven’t already, the end of the year is a great time to max out annual tax-advantaged account contributions. For employer-sponsored retirement plans, every dollar you defer reduces your taxable income by the same amount for that year.

The following are the contribution limits for 2021:7

Employer Retirement Plans:


  • 401(k), 403(b), 457(b) – $19,500
  • Catch-up contribution (age 55+) – $6,500
  • SIMPLE Plan – $13,500
  • Catch-up contribution (age 55+) – $3,000
  • SEP Plan – $58,000
  • Roth/Traditional IRA – $6,000
  • Catch-up contribution (age 50+) – $1,000


You have until your tax filing deadline to contribute to a Roth or traditional IRA. If you delay until next year, be sure to specify which contributions are for 2021.


There is a lot to think about regarding taxes and retirement planning. If you have any questions about any of the strategies above, please give us a call. We’re here to help!




Scott B. Wharton & Team


1 Charles Schwab. Sept. 27, 2021. “Sharing the Wealth: How Lifetime Gift Tax Exemption Works.” Accessed Nov. 9, 2021.

2 IRS. Sept. 17, 2021. “Expanded tax benefits help individuals and businesses give to charity during 2021; deductions up to $600 available for cash donations by non-itemizers.”

Accessed Nov. 9, 2021.

3 Fidelity. 2021. “Qualified Charitable Distributions (QCDs).” Accessed Nov. 9, 2021.

4 Fidelity. Oct. 28, 2021. “How to cut investment taxes.”

personal-finance/tax-loss-harvesting. Accessed Nov. 17, 2021.

5 Emily Brandon. U.S. News & World Report. Oct. 25, 2021. “Year-End Retirement Planning

Deadlines for 2021.” Accessed Nov. 9, 2021.

6 Greg Daugherty. Investopedia. Oct. 8, 2021. “How to Use a Roth IRA to Avoid Paying

Estate Taxes.” Accessed Nov. 9, 2021.

7 Putnam Investments. November 2020. “2021 tax rates, schedules, and contribution limits.” Accessed Nov. 9, 2021.

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