2021 Year-End Tax Checklist

The 2021 tax year is quickly ending, with only weeks left to take advantage of the available tax breaks. Below are some key strategies to potentially help minimize taxes.


Evaluate Opportunities for Roth Conversions


Investors with traditional IRAs might consider converting to a Roth IRA. Investors who move money from their traditional IRA will pay taxes on the funds at ordinary state and federal rates and deposit the remaining funds into a Roth IRA where it can grow tax-free. Future withdrawals can be made on a tax-free basis provided investors meet certain criteria, such as a five-year waiting period following the conversion, and must occur after the age of 59 ½.


Complete Required Minimum Distributions


Individuals 72 and older holding an IRA, SEP IRA, SIMPLE IRA or retirement account should remember to withdraw the Required Minimum Distribution (RMDs). RMDs were waived for 2020 but are required for 2021. The penalty for forgetting is 50% of the amount that should have been distributed, and this could be a huge penalty. By way of example, if the required RMD is $30,000, the penalty would be $15,000.


Those who turned 72 this past year and hold a retirement account have until April 1, 2022, to take the first distribution. However, a person’s tax situation might have them consider taking an RMD before the year’s end.


Review Contributions to Tax-Advantaged Retirement Accounts


Consider increasing contributions to retirement plans by contributing the maximum amount. In 2021, individuals are allowed to contribute up to $19,500 to a 401(k) plan, and individuals aged 50 and older can contribute an additional $6,500 for a total of $26,000. Contributing to a retirement plan is a great way to save money for retirement while reducing taxable income.


Contribute to a Health Savings Account (HSA)


HSA contributions can lower taxable income. Plus, interest earnings on contributions are tax-free. Because HSA contributions can be made with pre-tax funds, individuals can deduct the amount contributed from annual taxable income in the year the contribution was made.


HSA account holders 55 years of age and older are entitled to make an additional catch-up contribution valued at $1,000 on top of the above contribution caps (refer to the table below).  Table source IRS website.

Review Tax Withholdings and Estimated Tax Payments


The end of the year is a good time to look at the amount of tax that has been withheld from any pay, pension, or Social Security, as well as any estimated payments made throughout the year. It’s possible that more tax has been withheld than necessary.


The 2021 Form 1040-ES, on the IRS website, will help in completing the calculations. Located in the 2021 Form 1040-ES instructions are the tax rate schedules to use for projecting 2021 estimated tax liability. Of course, it is always prudent to check with a tax advisor to ensure the correct withholding amount.


Persons facing a penalty for underpayment of federal estimated taxes might consider increasing withholding amounts going forward. Doing so may reduce or eliminate potential penalties and interest.


Proactive Tax-Gain and Tax-Loss Harvest


Tax-loss harvesting only applies to taxable investment accounts. Retirement accounts such as IRAs and 401(k) accounts grow tax-deferred and so are not subject to capital gains taxes.


Investments that decreased in value could be sold at a loss, using the loss to offset any realized gains on a similar investment. It’s important to proactively monitor losses throughout the year so that losses can be taken as they occur. For a married couple filing jointly, up to $3,000 per year in realized capital losses can be used to offset capital gains tax or taxes owed on ordinary income.


Consider Charitable Giving


Taxpayers who take the standard deduction cannot deduct their charitable contributions. The law now permits taxpayers to claim a limited deduction on their 2021 federal income tax return for cash contributions made to certain qualifying charitable organizations.


Taxpayers, including single filers or married individuals filing separate returns, can claim a deduction of up to $300 for cash contributions to qualifying charities during 2021. The maximum deduction is $600 for married individuals filing joint returns.


Consider an Annual Gift to Family


Making an exclusion gift before the year is up will save on gift and estate taxes. Gift up to $15,000 per person ($30k for spouses) are allowed for an unlimited number of individuals. These transfers also may save family income taxes where income-earning property is given to family members in lower-income tax brackets not subject to the kiddie tax



Child Tax Credits and Withholding


Last March, Congress expanded the Child Tax Credit (CTC) asking the IRS to make monthly advance payments to taxpayers of up to half their total credit, based on existing tax records. Many filers who accepted CTC payments will receive lower refunds and possibly see an increase in taxes due on their 2021 returns. Those who are receiving monthly checks should adjust their expectations regarding refunds.



Author , Jeff Spiegel, CPA

Managing Principal

Spiegel Accountancy





Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.