Year End Planning

Time is running out! The following topics were discussed on our Year-End Planning webinar last week. If any of these are of interest, please let us know as soon as possible.


Time is running out! The following topics were discussed on our Year-End Planning webinar last week. If any of these are of interest, please let us know as soon as possible. You can contact Jaycee Smalley at jsmalley@newcapitalmgmt.com or 713-388-6322.


Charitable Gifting and Bunching

Now is the time to make a contribution to your Fidelity Charitable Donor Advised Fund before year-end. We recommend contributions of highly appreciated stocks which will help you to avoid capital gains tax on those securities and still receive a tax deduction for the full amount. If you are working or still in a high-income tax bracket and you itemize your deductions, bunching may be an option for you as well. Bunching is a “lump-sum” of charitable contributions in a single year so you can surpass the standard deduction and fill your charitable account for several years of donation recommendations.


Annual Gifting

If you are planning to make any gifts to family or friends and would like to utilize the annual $15,000 exclusion limit, per person, you have until the end of the year to do so.


Roth Conversions

Roth Conversions are a way to accelerate income into a single year in which you have low income. The goal is to pay the tax now at a lower tax rate than you may later in a higher tax bracket if that were to materialize either in tax law changes or an increase to your income tax bracket through other income sources. You would also have the converted funds to grow tax-deferred and eventually tax-free upon withdrawal from the Roth IRA. If you are already paying a high tax rate it does not make as much sense. We have tools to run simulations to see if you would benefit from a Roth conversion, so if you are interested in a Roth Conversion, please let us know.

I-Bonds

In addition to the treasury bonds we have been buying for you through mutual funds, you can also gain inflation-protected exposure through what’s called an I-Bond. This is a treasury inflation-protected bond that is issued directly by the US Treasury in limited amounts. An individual is limited to $10,000 a year, per person, or per entity. The end of the year is a good opportunity to “double-up” on those purchases by buying them on or before December 31st and then again on or after January 1st. The bonds are selling at a 7.12% inflation-adjusted interest rate that’s good until March of 2022. The rate is variable and readjusts every 6 months through the 30-year life of the bond, but it will generally match the current inflation rate.

The bonds cannot be purchased directly at Fidelity and they cannot be purchased within an IRA. They must be purchased through treasurydirect.gov where you will open an account for each individual/entity and link your Fidelity or other bank account directly to your account to purchase the bonds. The bonds cannot be redeemed within the first year and if they are redeemed within 5 years you will forfeit the latest 3 months of interest. If you would like more information or need assistance opening an account please let us know.


State and Local Taxes (SALT)

If you owe property taxes you are currently capped at $10,000 in deductions on your tax return. It may be possible that the current cap will be raised or eliminated in the Build Back Better Bill so if you are able to wait until January 2022 to pay both your 2021 and 2022 property taxes there may be the opportunity to lump both payments into a single year and take the higher tax deduction.

There is talk among a democratic-controlled Congress that they are going to do away with the limits that were put on state and local taxes (SALT) by the Trump administration (you may remember you used to be able to deduct your full mortgage and full property tax but that’s no longer the case), but the constituents in the democratic lead states like California, New York, and Massachusetts, which are places where they have high local property taxes, are pushing their representatives to get rid of that cap. Those who own homes and/or have mortgages here in Texas and are on the higher end of the spectrum in terms of property tax and mortgages would benefit from this change.



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