Approaching 2022: What you need to know for Financial, Investment, and Tax Planning

Any year is an important year to strategically start planning for year-end, however this year maybe even more important due to all the pending legislation currently in Congress (see summary below highlighting some of the many changes).

Please contact us to schedule some time to discuss your situation. We can work on individualized strategies to fit your needs and address any concerns.

Possible Legislation floating through the Senate, House, and Presidency:

Income Tax:

  • For taxpayers earning $450,000 married couples ($400,000 single earners), your tax bracket, which is now 37%, may increase to 39.6%.
  • Medicare maybe expanded to cover dental, vision, and hearing services.
  • Tax credits for purchasing health insurance through the marketplace ( maybe increased.
  • The Corporate Income Tax Rate maximum maybe raised from 21% to 26.5%
  • Back-door Roth Conversions and Mega Back-Door Roth Conversations maybe eliminated in 2022.
  • IRA accounts maybe be prohibited from holding investments that require certain qualifications such as “accredited investor status”.
  • IRS audits and enforcement may increase and become more stringent with more reporting required from third-party custodians.
  • The Children’s Tax Credit maybe increased accordingly:
    $2000 to $3,000 per child between the ages of 6 and 17.
    $2,000 to $3,600 per child under the age of 6.
    Tax credits can be used to reduce your tax liability. All working families earning less than $150,000 annually ($112,500 single earners), may receive a full credit.

Capital Gains Tax:

  • For taxpayers earning $450,000 married couples ($400,000 single earners), the maximum capital gains rate may increase to 25%.
  • For taxpayers earning more than $400,000, Net Investment Income Tax (NIIT), currently at 3.8% may apply not only to capital gains but also pass-through business income.
  • New wash sale rules for cryptocurrencies will be applied.

Estate and Gift Taxes:

  • The lifetime exemption maybe reduced from $11.7 million/person to $5 million a person and be adjusted for inflation.
  • Irrevocable grantor trusts would be included in the decedent’s estate when calculating estate taxes.
  • The current proposal has no mention of eliminating the step-up in basis at death, taxed capital gains at death, limited annual exclusion gifts, and raised maximum estate tax rate above the current 40%.
  • If you would like to discuss the other proposals related to Estate and Gift Taxes, then please call us in the office to set-up a consultation.

Tax Planning Strategies to Consider

Strategies for Income and Capital Gains Taxes:

  • Convert your Traditional IRA to a ROTH IRA otherwise known as a Back-Door Roth. Although you will pay tax on the amount converted, your withdrawals at retirement will be tax-free. If you anticipate your income to be higher next year, this year might be an ideal time to pay tax on a Roth Conversion. The current proposal eliminates the ability to convert the non-deductible portion of a traditional IRA starting in 2022.
  • Capital Gains: The proposed legislation will impact all sales after September 13, 2021.
  • Maximize your Retirement Plan Contributions: If you participate in an employee sponsored 401(K), the last day to contribute is December 31. Please contact us for all other 2021 IRA contribution deadlines.
  • Tax Harvest Loss Investments for 2021: By this point of the year, you should have a good idea of your realized gains for 2021 as well as any unrealized gains and losses you can use to reduce your 2021 tax liability.

I realize there is a lot of uncertainty with the proposed legislation, and we realize this has the potential to have profound effects on the financial decisions you make now and, in the years, beyond.

Please continue to stay safe and let us know if you have any questions.