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Year-End Tax Planning Strategies

If you are not engaging in year-end tax planning, you could be leaving money on the table. Consider the following strategies to identify
potential opportunities to lower this year’s or next year’s tax bill. Be sure to consult with your Stifel Financial Advisor and a qualified tax
advisor before you decide to take any action.

Tax Gain/Loss Harvesting

  • Review your taxable investment accounts to determine the amount of gain or loss for the year. Remember to include capital gains distributions from mutual funds, which typically occur in the last few months of the year.
  • If faced with a gain, review your prior year tax return for any capital loss carryforward or consider harvesting unrealized losses to reduce your tax bill. Also, remember the wash sale rule. When you sell to realize a loss, you must wait 30 days before repurchasing the same or a substantially identical security. If you do not, the loss will not be allowed until you sell the new security.

Retirement Plan Considerations

  • Maximize your retirement plan contributions to provide tax deferral of your income. To do this, review your retirement plan contribution options. You may be able to contribute to both your employer’s retirement plan and an IRA for the same tax year.

  • Determine whether it is more beneficial to contribute to a Roth IRA or a traditional IRA. A traditional IRA contribution may provide a current year tax deduction. However, if your goals are focused on long-term tax planning, a Roth IRA may be more beneficial. Although there is no deduction for a Roth IRA contribution, the distributions are tax-free when certain requirements are met. Your employer’s retirement plan may also offer a Roth option.

  • Consider Roth conversion strategies. This may be helpful if you expect to be in a high tax bracket in the future or if tax rates increase due to legislative changes. Moving retirement assets from a traditional IRA to a Roth IRA is a taxable event. However, it does offer a number of benefits, including:

    • Tax-free growth. Roth IRAs are funded with after-tax dollars. Generally, when distributions are taken from a Roth IRA, there is no tax due on the original contributions or any subsequent growth.

    • No required minimum distributions (RMDs) during Roth IRA owner’s lifetime.

    • Unlike traditional IRAs, Roth IRAs are not subject to RMDs. Reduced traditional IRA RMDs. Converting funds from a traditional IRA to a Roth IRA reduces the traditional IRA balance. This, in turn, reduces the amount of RMDs the traditional IRA owner will have to take in the future.

    • Tax efficiency for beneficiaries. Most beneficiaries of retirement plans must now distribute their inherited retirement assets within 10 years following the year of the original account owner’s death. A Roth IRA conversion could greatly reduce the tax burden on your beneficiaries that would otherwise apply to a traditional IRA under this new 10-year rule.

  • Don’t forget to take your RMD. If you turned 72 in 2021, you have until April 1, 2022, to take your first RMD. All RMDs after your first RMD must be distributed annually by December 31. A 50% penalty may apply to a missed RMD.

  • Review your eligibility to recontribute your 2020 retirement plan distribution. In 2020, the CARES Act allowed for coronavirus-related distributions (CRDs) from IRAs and employer retirement plans. If you were eligible and took a CRD in 2020, you may recontribute those funds within three years to avoid tax on the distribution.

Gifts to Individuals or Charities

  • Utilize annual exclusion gifts. Under current tax law, every individual can gift up to $15,000 to an unlimited number of recipients without any estate or gift tax consequences. This may be beneficial if you believe your estate will be subject to estate tax upon your death.

  • Use appreciated property in your gifting strategy. Annual exclusion gifts may save your family income taxes when income-producing property is given and capital gains are later realized by family members who are in lower income tax brackets and are not subject to the kiddie tax.

  • Fund a 529 plan with gifts for education. The earnings in a 529 plan grow tax-deferred, and the distributions are tax-free if used for a qualified expense. Also, some states allow a state income tax deduction for contributions. On the other hand, if you are taking distributions from a 529 plan this year, remember that you must be able to match those distributions with qualified education expenses that were incurred this year to receive tax-free treatment. If you take the 529 plan distribution this year but pay the expense next year, it will not be a tax-free distribution.

  • Gifting appreciated stock to charity may also provide tax benefits. A gift of stock you have held for more than one year will provide a tax deduction in the amount of the fair market value of the donated stock. You will also avoid paying any tax on the gain that is transferred to the charity.

  • Consider using a Stifel Donor-Advised Fund (DAF) to meet your charitable giving goals. A Stifel DAF:

    • Provides a charitable tax deduction in the year of the contribution

    • Allows you to advise when the gifts are distributed to charities and which charities (subject to approval) receive the gifts

    • Accepts gifts of cash or appreciated stock

    • May be used in a bunching strategy, where multiple years’ worth of charitable donations are bunched together in one year so that total itemized deductions exceed the standard deduction, and you realize a tax benefit for those gifts. Although the larger deduction is taken in one year, the gifts may still be disbursed to a variety of charities over several years. This strategy is also beneficial in providing a higher deduction in a year when you may have higher income due to a business or real estate sale, a Roth IRA conversion, or other income event.

  • If faced with RMDs, consider a qualified charitable distribution (QCD). A QCD is a direct transfer of funds from your IRA to a qualified charity. Generally, RMDs are considered taxable income; however, your RMD is excluded from income to the extent the QCD strategy is employed. For example, if your RMD for the year is $10,000, and you make a $7,000 QCD, only $3,000 of your RMD will be taxed. The maximum amount you may exclude from income is $100,000 per year, per person, and you must be at least 70 ½ to use this strategy.

Withholding and Other Tax Payments

  • Before year-end, use the IRS Withholding Estimator at irs.gov to determine if you are meeting your tax payment requirements and avoiding an unexpected tax bill or underpayment penalty when you file your tax return. This tool will help you determine if you should increase or decrease your withholding for the remainder of the year or make a quarterly estimated tax payment. Remember to consult with your tax advisor regarding your state’s tax payment requirements as well.

  • If you find you need to increase your tax payments for the year and have not yet taken your RMD, consider increasing the withholding amount on your RMD. You may also choose to withhold tax on other types of retirement income, such as Social Security benefits or pensions.

Pending Legislation

  • Stay current on pending legislation. Congress is currently working on several tax provisions that could result in a tax increase or the loss of some tax planning strategies for certain taxpayers. If significant changes occur, there may be little time to act before year-end. Now is the time to consider what you might do if this legislation is enacted.

  • If you believe tax rates could increase next year, you may benefit from accelerating income into the lower-rate year or postponing expenses/deductions into the higher-rate year. For example, you may accelerate taxation of income through Roth IRA conversions, employer stock option exercises, or capital gain recognition. If it makes sense to defer expenses/deductions, you could delay making charitable contributions or harvesting capital losses.

  • When considering your next move, remember that even permanent tax laws can change. Looking ahead, changes in the makeup of Congress or a new president could result in a change in tax policy in a relatively short period of time. Your tax strategy should consider the long-term impact of any decisions you make today. These are just some of the year-end steps that can be taken to reduce your income tax burden. Please contact your Stifel Financial Advisor and your qualified tax advisor if you have additional questions about the strategies discussed above.


Stifel does not provide legal or tax advice. You should consult with your legal and tax advisors regarding your particular situation.

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