Category Archives: Year-End Tax Planning

BY MATTHEW BURNELL

“It’s that time of the year, and I don’t mean just the holiday season, even more exciting it’s time for year end financial and tax planning! The following are some topics that you may want to discuss with your tax accountant or financial advisor.

One year end strategy is “tax loss harvesting”. You or your financial professional may be selling equities in non-retirement accounts throughout the year. If selling at a price higher than the purchase price, you have a capital gain on the sale which is taxed according to your income bracket and the amount of time the security was held. With the goal of reducing tax on capital gains, you can look to offset some of the gains by selling other securities in your portfolio that have a loss.

This should be done strategically considering the investment philosophy of your portfolio. Note, repurchasing the same or substantially identical security that you sold for a loss within thirty days, or the loss may be considered a “wash sale” and disallowed.

Now may also be a time to review your withholding on your salary heading into the new year. If you keep owing a large tax bill in April and would prefer to pay this over the course of the year instead, and if applicable reduce interest and penalties your withholding percentage may not be aligned with your income tax rate. For example, if your effective Federal Tax Rate is 25% and the withholding on your paystub is 15%, there is a 10% gap here and you will likely owe taxes in April if you have not been making estimated payments. You can adjust your withholding on form W4 provided by your employer.

BY Megan Nelson, CPA

Business owners, whether a sole-proprietorship, partnership, S-Corporation or closely held C Corporation, should take the time before year end to assess their current financial situation.  First and foremost, make sure the books and records are up to date, reconciled and properly categorized so you have an accurate view of your financial picture.  No benefit is derived from tax planning based upon poor records.  Next, take some time to reflect on the past year, anticipate the remainder of the year and project ahead to next year. 

Most business owners are looking to minimize taxes, however avoiding taxes at all cost may not always result in keeping the most cash.  For example, buying something before year end for the sake of getting a deduction does typically result in lower taxes, but it can also result in a negative impact on cash flows, meaning  more dollars are spent than taxes saved and often doesn’t result in the best overall financial situation for the business.  On the other hand, spending money on necessary expenses or equipment that will help the business grow and be more effective/efficient might justify that impact on cash flows.  Or, if profits are up, it may make more sense to pay tax now and keep those after tax dollars to grow your business.

Keep in mind, tax planning shouldn’t be looked at based on a single year.  Consider your tax situation this year, but how might it compare to next year and the year after?  The Tax Cuts and Jobs Act (TCJA) became law in 2017 and lowered income taxes for almost everyone.  Personal income tax rates in effect today are scheduled to sunset at the end of 2025 and increase to what they were in 2017.  Under current law, the beginning of 2026 could find many taxpayers paying 3% to as much as 9% more in federal tax compared to the same income this year.  Maybe saving cash and postponing that equipment purchase is a better financial decision. 

If after looking at your current year income with consideration for few years, you decide it is beneficial to reduce current year income, here are some options to maximize deductions:

By John Gable

One of the rewards for working over several decades is the ability to contribute to tax-advantaged retirement accounts, which can help provide needed income for you when you do retire. 

As the years went by, you may well have accumulated several retirement accounts, such as IRAs and 401(k)s or similar employer-sponsored plans. But you might find it advantageous to consolidate these accounts with a single provider.

Consolidating them can provide you with several potential benefits, including these:

• Less confusion and clutter. If you have multiple accounts in different locations, it may be difficult to keep track of tax documents, statements, fees, disclosures and other important information. Consolidating accounts could help provide clear, simplified account maintenance.

• Less likelihood of “lost accounts.” It may be hard to believe, but many people abandon their retirement accounts, leaving thousands of dollars behind and unclaimed. In fact, at the end of 2021, there were nearly 25 million forgotten 401(k) accounts, worth about 20 percent of all 401(k) assets, according to an estimate by Capitalize, a financial services company that helps individuals roll over retirement plan assets into new accounts. 

The Adirondack Regional Chamber of Commerce will present a session on regional economic conditions from the perspective of the Federal Reserve Bank of New York on Wednesday, Nov. 30, at The Queensbury Hotel, 88 Ridge St., Glens Falls.

Economist Jason Bram, an economic research advisor and research officer within the regional analysis function at the New York Fed, will be the speaker.

The event will run from 9:30-11:30 a.m.

Bram is an economic research advisor in Urban and Regional Studies within the Household and Public Policy Research Division of the Federal Reserve Bank of New York. His research and analysis focus is on the U.S. economy, with a primary emphasis on the Federal Reserve’s Second District that includes New York state, northern New Jersey, and southwestern Connecticut, as well as Puerto Rico and the U.S. Virgin Islands. 

Bram produces the regional Beige Book reports, and uses monthly business surveys to monitor and analyze current and emerging economic trends and issues of concern. Recent research has focused on minimum wage effects and effect of the pandemic on local economies. Earlier research focused on housing markets, composite indexes of regional activity, dynamics of the Puerto Rico economy, and the impact of the 9/11 terrorist attack on the New York City economy. 

By Jennifer Corcoran, Esq.

The coming of a new year often has us reflecting back on things we meant to do but did not get done or looking forward to things we wish to accomplish. It is the perfect time to put an estate plan in place or review your existing estate plan for any changes that may need to be made.

In addition, major life changes such as marriage, divorce, the birth of a child, a death in the family or even an increase or decrease in assets or income warrant updating your estate plan.

You may have had the foresight to create an estate plan to ensure that your assets are distributed the way you want them to be after you are gone. However, each new year brings updates to laws and potential life changes, all of which should be reflected in your estate plan.

What if you don’t have an estate plan? The new year is the perfect time to create one, no matter how many—or few—assets you may have. Among the many benefits, an estate plan can help to protect families with children and ensure that heirs are not overburdened with debts or taxes. A good estate plan, created with the help of a knowledgeable estate planning attorney, allows you to control the distribution of your assets according to your wishes.

It is important that your will is in place and up to date, because without a will, your assets could pass under the intestacy laws to persons you do not intend or wish to receive them. You cannot pass assets to nonfamily members, and your estate cannot make charitable contributions without a will.

By Patrick J. Diggin

During the COVID-19 pandemic the CARES Act provided for expanded deductibility of charitable contributions to encourage taxpayers to give to charities during 2020. In December 2020, the Taxpayer Certainty and Disaster Tax Relief Act (TCDTR) was enacted which expanded and extended many of these provisions into 2021 to incentivize continued charitable giving through the end of the year.

The expanded benefits allow individuals who elect to take the standard deduction and ordinarily do not qualify for charitable contribution deductions, to deduct up to $300 ($600 for married taxpayers filing joint returns) for cash donations to qualified public charities.

For individual taxpayers that itemize their deductions, the expanded benefits increase the deduction limitation, ordinarily limited to up to 60 percent of the taxpayer’s adjusted gross income (AGI), up to 100 percent of AGI so long as the charitable contributions are made in cash to qualified public charities during 2021.

If excess contributions are made over the 100 percent limit, the donor may carry these excess deductions forward for up to five subsequent tax years, however the enhanced deductibility is set to expire after 2021.

Corporate taxpayers also saw an increase in deduction limits from the ordinary limitation of up to 10 percent of taxable income to 25 percent.

By Jill Nagy
Get your life in order, think about possible tax changes and, above all, don’t panic. That is the advice of area financial advisors for surviving in the age of COVID-19.
“It’s never been more important to attend to your estate plan,” said Jeff Vahanian of Vahanian & Associates in Saratoga Springs. “We are very aggressive about this. People have had to adjust their behavior in many ways. I hope they refocus on things that matter.”

BY Mickey Orta
The top two questions that financial professionals have been hearing from customers are: “What’s going to happen to my investments and financial plans depending on the results of the presidential election?” and “When will things get back to normal post-COVID?”
While these questions can’t be answered directly, that doesn’t mean we have to sit tight without taking any action.
It’s probably safe to say that 2020 has not unfolded in a way that any of us could have predicted.