Okay, the New Year is closing in fast, so I wanted to pen a quick reminder about what HAS to be done before the 31st…
- Charitable donations. Individuals who itemize their deductions can receive a current-year tax deduction for cash donations. In other cases, such as stock donations or gifts to foundations, they are still tax deductible but are not eligible for the 100% AGI limitation.
- Capital losses. If you’re going to take them, NOW is the time, not after the first of the year, to make sure ALL your documentation is correct. Once 2022 gets here, you don’t have the leeway you do now. This can also get into a more advanced “Tax Loss Harvesting” strategy wherein an investment with lost value can still help your portfolio; if an investment drops, you can deduct that loss, which helps boost your overall investment returns.
- Avoid penalties. Take a few minutes today to ensure you have enough “paid in” for the year to avoid any penalties for underpayment. Yes, there’s usually a lot of “wiggle room” to stay safe, but don’t tempt fate. Get clear today, pay in today, and don’t incur any more costs.
- SBA or PPP materials. If the SBA has forgiven your PPP loan, it will be excluded from your gross income. Remember, though, you’ll also NOT be able to deduct additional expenses paid with those funds. Gaining clarity on that now, rather than in the New Year, is a good policy to have in place.
- 401(k). While many business owners don’t have access to a traditional 401(k), you might. Make sure you – and your employees – remember to maximize their contributions before the end of the year. At the same time, don’t go over the limits – you’ll be subject to having those contributions taxed!
Year after year, I have clients who are incredibly sharp and miss these types of opportunities to mitigate their tax bills. It’s frustrating, and even more so when the solution might have been as simple as a single transaction completed before December 31st.
Remember, too, that your spouse also has some of these same opportunities – or that some of these can be combined in your returns. Just as importantly, you need to remember that there are still a host of other places you can mitigate your tax burden until April 15th but taking the time now to get an accurate “snapshot” of where you are right now can give you a tremendous amount of clarity on what needs to be done in these next few months.
Until then, I wish you a Happy New Year!