Year End Tax Planning Strategies

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Clifton Dortch
November 2, 2021
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While the end of the year always tends to be busy with the holiday season, in the financial world, it also represents a time for high-net-worth individuals to focus on their year-end planning. End-of-year planning is essential for many reasons, including tax planning, philanthropic planning, retirement planning, etc.

2021 has been an interesting year for our economy and politically alike. The current administration has focused on supporting the economy while debating two separate bills with significant tax implications. In the interim, this has created a good amount of uncertainty for taxpayers trying to determine what strategies they should utilize before December 31st. Despite the uncertainty, there are still many strategies that individuals can explore to execute their year-end planning effectively.

Here are a few:

Donor-Advised Fund

Donor-Advised Funds are a philanthropic strategy that comes with a tax incentive. Placing assets, such as stocks, personal property, or cash in a donor-advised fund allows for a deduction of the entire amount contributed the year of the contribution. You, as the donor, can decide how you would like to distribute the assets in future years. These assets can also continue to grow over time, thus increasing the initial donation's charitable impact. If 2021 has been a high-income year, contributing one lump sum this year will help increase your overall deductions.

Tax Loss Harvesting

Tax-loss harvesting involves selling off investments such as stocks or mutual funds that underperformed in your portfolio and are now worth less than when you bought them. You can then use these losses to offset any gains that you have in your portfolio. If you have more losses than gains, you can use up to $3,000 of those losses to offset other types of income, carrying over any losses over $3,000 to the following year.

However, individuals intending to sell an asset to realize the loss and then repurchase it should be aware of the "wash sale rules," which prevent someone from deducting a loss if they repurchase "substantially identical" investments within 30 days.

Roth Conversions

Roth conversions allow you to convert funds in a pre-tax individual retirement account, or other qualified accounts, to an after-tax Roth IRA. You will have to pay tax on the converted money, but the Roth IRA provides future tax-free growth. As converting an entire IRA may bump you into a higher tax bracket, individuals can spread conversions over many years. Also, a large conversion made within two years of signing up for Medicare may trigger the necessity to pay for the more expensive Medicare Part B.

Doing this now may also be a good idea since the House Democrats are deciding whether they should end Roth Conversions for those making $400,000 per year ($450,000 for married couples filing jointly).

Deferring Income

Deferring income is another strategy that many people focus on during their year-end planning. You may not be able to defer your salary or wage income; however, delaying a year-end bonus could be very beneficial. Note, however, this is only beneficial if you think you will be in the same or lower tax bracket in the following year. If not, you could end up paying more in taxes.

If you are self-employed, do freelance or consulting work, you should consider delaying billings until late December to ensure payment is not made until the following year, thus reducing the current year's income.


These are only some of the strategies that individuals use to effectuate their end-of-year planning. Many other strategies exist; however, utilizing more straightforward strategies may be prudent in an uncertain climate.

If these strategies interest you or you have questions, please feel free to reach out to your team at Balentine.

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