As we start 2022, it’s a great time to start using tax-saving ideas to help you meet your personal financial planning goals.

The global pandemic has continued to bring many uncertainties in policy and tax legislation and volatility in the financial markets, but overall 2021 was another historic year for equities.

The following checklist will help you identify important actionable items to consider as part of your 2021 year-end income and transfer tax planning, as well as help you prepare for 2022.

One main caveat is there’s still much uncertainty regarding proposed legislation surrounding income and estate taxes. While careful consideration will need to be given to these areas, a “wait and see” approach is best until we receive further clarity.

Income tax planning:

1. Remember to report capital gains and investment income information for the most accurate year-end projection. Additionally, report information regarding any cryptocurrency assets to ensure that holdings, purchases, or sales of these assets are filed.
2. Harvest capital losses to offset realized gains and rebalance your taxable investment accounts.
3. Consider harvesting any capital gains that can be realized in the 0% tax bracket (available to lower income filers).
4. Review charitable contributions to maximize income tax deductions.
5. Consider donating appreciated assets that have been held for more than one year, rather than cash.
6. Opening and funding a Donor Advised Fund (DAF) is appealing to many, as it allows for a tax-deductible gift in the current year and also the ability to dole out ( disburse these) those funds to charities over multiple years.
7. Qualified Charitable Distributions (QCDs) are another option for those over 70.5 and especially for those who don’t typically itemize on their tax returns.
8. Weigh the benefits of converting your Traditional IRA to a Roth IRA to lock in lower tax rates on some of your pre-tax retirement accounts.
9. Remember with Roth Conversions, they can’t be reversed once executed.
10. Keep in mind that Roth conversions will be more beneficial when the tax can be paid by funds outside of the IRA.
11. Remember that all IRA balances are included in the tax calculation of the conversion limiting the ability to only (don’t need only) convert after-tax amounts.
12. Maximize your contributions to a retirement plan, SEP IRA (if you are self-employed) and Health Savings Account.
13. If you age 72 or older or are a beneficiary of an applicable inherited IRA, take the required distributions before December 31, 2021.
14. If you expect your income to increase in the future, consider making Roth 401(k) contributions.
15. Review income tax withholding on your retirement account distributions and make any desired changes for the new year.
16. Review the timing of income and deductions.
17. With provisions of the Build Back Better Act still in flux, it’s still likely that tax rates will be increasing, so it may be attractive to accelerate income into 2021 and defer deductions to 2022 when they will be more valuable.

Estate and Gift Tax Planning Tips

1. Make use of annual exclusion gifts ($15,000 per person, $30,000 per married couple) to help save on potential future estate taxes.
2. Capitalize on the unlimited gift exemption for direct payment of tuition and medical expenses.
3. Consider gifting to a 529 plan by year-end if saving for a child’s or grandchild’s education.
4. Many states offer tax deductions for residents contributing to their state programs.
5. Consider gifting up to 5 years of the annual exclusion amount to an individual’s 529 plan, and with the filing of a gift tax return, elect to treat it as if it were made evenly over a 5-year period, gift tax-free.
6. Review lifetime gift and generation-skipping trust (GST) gifting opportunities to use additional applicable exclusion and exemption amounts.
7. While there’s less hope the bill will get passed now, the Build Back Better Act targets the lifetime gift and GST exemptions which could decrease them from $11.7 million per person to approximately $6 million, currently.
8. Consider intra-family loans and opportunities to leverage the current low-interest-rate environment.
9. Depending on whether the Build Back Better Act is implemented, grantor trusts such as Irrevocable Life Insurance Trusts (ILITs), Grantor Retained Annuity Trusts (GRATs), Spousal Lifetime Access Trusts (SLATs), and many other types of powerful wealth transfer vehicles could be rendered less impactful as a planning tool.

Retirement, Investment and Other Tips

1. Let your tax adviser know about any major changes in your life such as marriages or divorces, births or deaths in the family, job or employment changes.
2. Update pre-tax and Roth contributions to retirement accounts for 2022.
3. Review your various insurance policies and confirm whether the amount of coverage and deductibles are still adequate.
4. Review beneficiary designations with your custodian and update as necessary. 
5. Confirm that you have spent or have a plan to spend the entire balance in your Flexible Spending Accounts and set 2022 contribution amounts.
6. Review your investment portfolio and target asset allocation. Confirm whether you are within the targeted ranges for each asset class as recent market performance could have caused allocations to drift dramatically.
7. Review any scheduled 4th quarter estimated tax payments and assess any liquidity needs.
8. Consider an additional tax payment or increase in tax withholdings to eliminate a penalty.
9. Evaluate progress toward financial goals.

Using this checklist of tax-saving ideas to start 2022, you should have a better grasp of your personal finances in the new year.

SAMPAN, published by the nonprofit Asian American Civic Association, is the only bilingual Chinese-English newspaper in New England, acting as a bridge between Asian American community organizations and individuals in the Greater Boston area. It is published biweekly and distributed free-of-charge throughout metro Boston; it is also delivered to as far away as Hawaii.