Chesapeake Investment Advisors » Email Newsletter #36 (11-15-2021)

Posted on November 18, 2021 by Martin Knight in Monthly Newsletters | Comments Off

Things We Want to do before the End of the Year

Thanksgiving arrives in a week and marks the official start of the holiday season. As a percentage, Thanksgiving Day means we are 90% through 2021. Let’s think about things we can do with the remaining 36 days of 2021 to ensure we don’t miss something.

RMD’s. If you are over 72 years of age, be sure to take the required minimum IRA distribution (RMD). If we manage your IRA, we have already done this. But remember, you must take it from every IRA you own or face a 50% penalty of the RMD amount.
Charitable Giving. For taxpayers who do not itemize, you may be allowed an extra deduction this year of up to $600—on the short form (1040EZ). This is a new allowance as it was only $300 per return last year. For 2021 the IRS allows married individuals filing a joint return to deduct $300 each. If you’re single, it is still $300, but joint filers get $300 each.[i] Cash contributions to most charities qualify. If you’re close, top it off to $600.
Consider an IRA-to-ROTH IRA micro-conversion. The Tax Cuts and Jobs Act of 2017 lowered the Federal Income tax rates to levels not seen since 2012.[ii] Unfortunately, the law sunsets in 2025, so there is a limited window to take advantage of the low rates. The idea of a Roth conversion is to pay some taxes now on money that could be taxed later at a higher rate. And ROTH money has no RMD requirement, so you can leave it in the account, tax-free, forever—while Regular IRA money must eventually come out to be taxed. Also, a ROTH IRA is much more tax-friendly to heirs.
Max out your IRA or ROTH contributions for 2021. You have until the day you file your tax forms to do this, but I have found that the new year brings new distractions, bills, and demands on your money. Waiting until the last minute to do this is simply justifying procrastination—the enemy of all investing. Just do it now and get it over with.
Estate Planning. Make an appointment with an attorney to get your Estate plan(s) done or updated. Everyone wants to put this off till later; well, it is later, and it is time to get it done. Also, remember that your Estate documents are State-specific—so if you’ve changed States—get your old documents reviewed by an attorney in your new State of residence.
Tax-Loss Harvesting. If you have a Brokerage account, you should be looking to sell some losers. We should not fall in love with any of our investments. This is hard not to do—even for professionals. But if we have a loss, we can recognize that loss this tax-year, only by selling before the end of the year. Harvesting the loss can give you a nice tax deduction. It can also cancel recognized gains we have somewhere else. Chances are, we are already looking at doing this if your brokerage account is here. (Note, to avoid a wash sale, we cannot re-buy the position within 30 days.) [iii] But if we like (not love) the position, we can re-buy it in 31 days—and still get the deduction.