Jalene Hahn: Year-end tax planning in uncertain times

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Psychologically, tax and estate planning efforts in late 2021 are being influenced by proposed changes to tax laws, the lingering pandemic, the threat of inflation, and general economic uncertainty. All of these factors cloud the landscape for sound tax planning.

Most of the proposals being debated in Washington, DC, focus on taxpayers with very high net worth (over $ 30 million) and the richest 5% (over $ 450,000 per year). With all the noise, it’s easy to get distracted and lose sight of what’s important to the rest of us, which is to focus on what’s proven to work and get back to the basics.

Here are some of the topics everyone should be looking at:

Retirement accounts

??Have all contributions to the employer sponsored retirement account been used?

??If eligible, have Roth IRA contributions been made?

??If you are over 72, have you made the minimum required distributions or made any qualifying charitable distributions?

??If eligible, have you contributed the maximum to the health savings account?

College planning

??If you have a college goal and are an Indiana taxpayer, have you made at least $ 5,000 in contributions to a College Choice 529 account to qualify for a state tax credit?

??If you have money in a 529 account and your student has received any scholarships or bursaries, have you repaid yourself for that aid on their 529?

Investments – taxable accounts

??If you have direct investments in stocks, have you considered the impact of taking capital gains or losses?

??If you’re invested in mutual funds, have you estimated year-end capital gains distributions?

The benefits accumulate over several years. This is particularly important in 2021 due to our current low tax environment. I firmly believe that we will not see such low tax rates for several years, if ever.

When working with clients, I not only work with the current generation, but also look at potential future impacts on the next generation. I inherited my mom’s 403 (b) account when I was 36. If the current rules had been in place, I would have had to spread the balance over 10 years rather than my entire life. We weren’t in our best earning years, but depending on how we did the distribution it would have had a huge impact on our taxes. I see the potential for this to happen with clients who have retirement account balances over $ 2 million.

Some of the more advanced tax planning strategies for retirees include:

??Does it make sense to convert part of an IRA to a Roth?

??Does it make sense to take an IRA distribution even if you don’t have a minimum required distribution?

??How close are you to the next tax bracket and what will your marginal tax rate be?

??Will additional income affect the way your Social Security income is taxed?

??How do these changes impact your Medicare IRMAA supplement (or monthly income-related adjustment amount) or your health insurance premium if you receive a health insurance subsidy?

??Is it appropriate to start giving to children?

Every situation is different, and a strategy that works for one individual may not be for another.

Many financial advisers do not have the training or the expertise to be effective tax planners. The person who prepares your income tax returns often does not do any tax planning.

Most people turn to a CPA for tax planning, but it’s important to find a professional who works with people in situations like yours. For example, if you are a small business owner, you wouldn’t want someone to work with business executives. Even small business owners have unique needs, depending on their industry and business.

Visit different websites and read articles or newsletters to get a feel for a CPA’s client base. Get referrals, ask questions and do interviews. Helpful tip: You may want to wait until the end of tax season next year to conduct your interviews.

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Hahn is a Certified Financial Planner and Owner of WWA Planning and Investments in Columbus. She can be reached at 812-379-1120 or [email protected]


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