President's Letter: Tax Tips For 2022
by Jim Lineweaver, CFP®, AIF® President and Founder
Most of us have already filed our taxes for 2021, but that doesn’t mean we’re happy about it! As we saw our tax bills this year, many of us may have wished we would have planned differently last year. While there aren’t many strategies that still apply for 2021, we want to remind everyone that planning for next year’s taxes starts now.
In 2021, many people started their own business or added consulting to their list of services. If you find yourself in this situation, there are a wide variety of tax deductions you can take advantage of, such as writing off a lease or mileage on your car, your home, and computer equipment you might have previously owned. For your new venture, there are also a wide variety of retirement plans available.
Another common question we get each year is about gifting – whether it’s to a friend, family member, or a favorite charity. I always recommend that clients consider gifting appreciated securities rather than their hard-earned cash. Gifting an appreciated security means getting a write-off for its current full value. So, even if you only paid $10,000 for a security, and it’s now valued at $20,000, you can write off the whole $20,000 when you donate or gift it. And you can even gift appreciated property or real estate.
This year, the IRS has also increased the “above the line” deduction that came about in 2020, to $300 a person for 2021, and it may be higher next year. By itself, it isn’t much, but they’ve also increased the amount you can donate. As part of that same law, Congress increased the amount of your Adjusted Gross Income that you can donate from 60% to 100%.
You can also use a Qualified Charitable Deduction, or QCD, to give your Required Minimum Distributions to charity if you don’t need them. That can lower your tax bill significantly, while still allowing you to do good work for your favorite charity.
Finally, one strategy that hasn’t changed in years is bunching your deductions. Essentially, bunching deductions – whether to pay state and local or income taxes, along with things like charitable contributions into a single year, rather than spreading them out over two or more years - can help get you over the higher annual deduction, and can save you some on your tax bill.
These are just a few of the strategies you may want to consider as you plan for next year. If you have questions, or want to explore strategies, we’re always here to help.
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