Managing your tax liability for 2021 and beyond: 2022: Articles: Resources: CLA (CliftonLarsonAllen)

key ideas

  • As the tax deadline approaches, there are still several ways to defer or manage your tax liability.
  • Consider asset write-downs, charitable donations, and Opportunity Zone investments as viable tax-deferral strategies.
  • Using cutting-edge techniques like retirement planning can help you achieve your personal and professional financial goals.

As we approach the April 18, 2022 tax filing deadline, many people are looking for ways to reduce their current tax bill. It’s not too late to consider these elements for 2021.

6 possibilities for potential tax savings

As you finalize 2021 and start thinking ahead for 2022, here are six ways you could impact your tax liability.

1. Amortization

If you’re a business owner, keep in mind that things like depreciation don’t have to be decided when the asset is put into use. The amortization of the bonus is automatic. You can opt out of additional depreciation for each asset class by attaching a statement to your timely filed tax return and instead depreciate the asset over its useful life. Or consider using IRC §179 to fully account for capitalized assets on an asset-by-asset basis.

2. Required Minimum Distributions

If you receive required minimum distributions (RMDs) from your IRA and are charitable-inclined, consider asking your brokerage to pay your RMDs directly to charity. This is called a Qualified Charitable Distribution (QCD). It is not recognized as income and therefore keeps your adjusted gross income lower (potentially reducing your health insurance premiums) and still allows you to take the standard deduction. The QCD is limited to $100,000 per tax year.

3. Donor Advised Funds

Another charitable strategy is the use of a Donor Advised Fund (DAF). The Internal Revenue Code allows you to take a tax deduction in the year cash or other assets are transferred to a DAF. Funds from a DAF may be invested until you recommend that the DAF distribute the funds to one (or more) charity(ies) in the future. Interest, gains and dividends generated by investments made by the DAF are not taxable to you. Using a DAF can help you achieve your tax planning goals with great flexibility. Donating appreciated assets to the DAF can increase its usefulness as a tax planning tool, as you may be able to claim a deduction for the fair market value of the donated assets without ever having to pay tax on the gains in capital on appreciation.

4. Capital gains and opportunity areas

If you expect a large capital gain in 2022, or have gains that would be recognized in 2021, consider deferring tax liability by using an investment in the Opportunity Zone. If you reinvest qualifying capital gains in an Opportunity Zone investment during a 180-day window, you can defer tax on the initial gain until December 31, 2026. As an added benefit, if that investment in the Opportunity Zone is held for a total of ten years, full appreciation will avoid federal income tax.

5. Planning for retirement

Another great open opportunity for 2021 is still retirement planning. Some plans can still be set up and allow employer contributions to be made up until the extended due date of the declaration. Consider making the maximum allowable contribution to your pension plan. For 2022, 401(k) and 403(b) plans have a contribution limit of $20,500 – with a catch-up contribution of $6,500 for taxpayers who reach age 50 at the end of the taxation year.

6. Real Estate

The real estate market is hot everywhere, and §1031 is always an option. The opportunity here is to defer the gain by transferring the proceeds of a sale to a similar property traded within a specified time. Be aware – this strategy involves very specific timelines and steps that must be followed. If you’re ready to get out of the real estate game or have had difficulty finding replacement property, a Delaware Statutory Trust may be right for you. You are still in the process of doing a similar exchange with a qualified intermediary, but you acquire an interest in a professionally managed property selected from several offers with flexible closing dates.

How can we help you

Proactive and personalized planning is essential to help you manage your tax obligations and identify new savings opportunities. Our tax professionals can help you through the tax return preparation and planning process so you can file with confidence knowing that you have leveraged potential tax strategies to achieve your specific goals.

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