Tax Planning Tidbits
Individual federal income tax rates don’t appear to be increasing next year except for taxpayers with adjusted gross incomes over $10 million. Also, the estate tax stepped-up basis rules for inherited property are not expected to change.
Make the most of your charitable giving by donating appreciated property. Stocks, mutual funds, or real estate, that you have owned for more than a year and that has gone up in value provides the biggest bang for your buck. No one pays tax on the increase in value, and you get to deduct the full appreciated value of the donation if you itemize your deductions. If you don’t itemize, remember for 2021 the $600 deduction for cash donations for married filing jointly taxpayers and the $300 deduction for other filers. Non-itemizers can also make charitable contributions directly from their traditional IRA and get the same benefit as itemizers when they use them as their RMDs.
The annual gift tax exclusion is still at $15,000 per person, per year.
Increase your federal income tax withholding this year if you expect to owe taxes. This is the most efficient way to reduce underpayment penalties on balances owed on April 15th. You can give your employer a new W-4 to have more tax taken out of your wages. Also, taxpayers can take a large amount of taxes out of any late year RMDs or other retirement distributions. The cool thing about the late year withholding increase is that the IRS treats the withholding as being paid to them throughout the year. Estimated tax payments, on the other hand, are treated as paid when they receive them. Therefore, estimated income tax payments expose you to more interest and penalties.
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