5 Year-End Planning Tips for the Tax-Savvy Investor


In the 1950s there was no bigger American media star than Arthur Godfrey, who broadcast his radio show from Miami. In the 1960s a street was named after him in Miami Beach that still bears his name today.

Godfrey had many famous quotes, this one among them: “I’m proud to be paying taxes in the United States. The only thing is, I could be just as proud for half the money.” Many Americans may feel the same way, especially in this environment where Congress is considering tax proposals that could result in some taxpayers paying more.

Although there are only a few weeks left in 2021, there is still time for you to make some tax-savvy moves. And as you approach year-end planning, keep in mind that having the right team is essential. Your financial advisor should work hand in hand with your tax advisor to help you succeed.

Here are five ideas to consider discussing with your advisors before year-end:

  1. Charitable giving: Use your required minimum distribution to make gifts – If you are of the age where you’re required to take minimum distributions from your individual retirement account (IRA) and you are charitably inclined, you can set up withdrawals of up to $100,000 per year from your IRA that go directly to a charity or charities of your choice. This strategy will allow you to satisfy your required minimum distribution yet pay no tax on the income.
  2. Charitable gain harvesting – As of this writing, the U.S. stock market is at or near all-time highs. Investors may have substantial long-term unrealized gains in their investment portfolios. Positions in these stocks or funds when transferred either directly to a charity or a donor-advised fund provide multiple benefits:
    1. For starters, the charity will be able to liquidate the position and use the cash to benefit their organization.
    2. The individual making the gift will receive a full market value deduction on the gift as long as they’ve held the position for at least one year. And while there are certain limitations on how much you can deduct in relation to your adjusted gross income, the deduction can be carried forward an additional five years if needed.
    3. The gift giver will now have wiped the slate clean regarding the unrealized gain on the positions transferred, and can even immediately repurchase the same number of shares they donated with cash they otherwise might have used to fund the gift.
  3. Asset location – At Kaufman Rossin Wealth, we use some investments in private lending funds that have an expected annual dividend around 8%; however, this is taxed as ordinary income. For investors who have an IRA, we recommend they locate this investment in those funds whenever feasible so they can defer this income until they need to take the required minimum distribution (while this is currently age 72 for most, there is discussion that this age will be increased in the future.) Also keep in mind that one starts to withdraw about 4% of the amount in the first year when the required distribution starts and then the amount increases with age, so this deferral of income can last a long time.
  4. No-cost or low-cost Roth conversion or realized capital gain – If you are in a year where your adjusted gross income (AGI) may be uncharacteristically low, doing a Roth conversion or generating long-term capital gains may make sense. Using a Roth conversion to raise AGI to $80,000 would be taxed at 12%, and using long-term capital gains would be taxed at a zero-percent rate!
  5. Funding of SEP, IRAs, and 401(k)s – For some investors, maximizing deferrals may be important. If that is the case, look to maximize your 401(k) contribution. If you are an employee, you may want to defer as much as possible of your remaining paychecks to 2022. If you are self-employed, it may make sense to establish and fund aso lo 401(k) before year-end.

With December 31st quickly approaching, now is the time to consult with both your financial advisor and tax advisor about what year-end planning moves make the most sense for your situation. Being tax-savvy and proactive can help you minimize your 2021 tax bill and maximize the impact of your investments.

Charles Sachs, CFA, CFP®, is a Chief Investment Officer at Kaufman Rossin Wealth, LLC, a Registered Investment Adviser.

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