Individual Tax Planning for 2021

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Review Your Withholding

Now is a good time to review your 2021 income tax withholding to ensure you are not substantially under-or-over withheld when your return is filed in early 2022. 

  • Under-withheld: you will have to pay a more in taxes when you file since you aren’t paying enough in during the year.
  • Over-withheld: you typically get a large refund, but need the cash now, changing your withholding can give you more money in your paycheck and less in your refund.

The IRS offers a “Tax Withholding Estimator” that will assist you in completing a revised form W-4 which your employer will require in order to adjust withholdings.  If you are self-employed, you will need to review your year-to-date results and adjust your 4th quarter estimates accordingly.

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Calculate Correct Withholding

Tax Withholding Estimator

Go to the IRS website by clicking the button below.
IRS Calculator

Avoid Capital Gains

The current administration is looking at increasing the capital gains tax rate, but as it stands now, capital gains on investment income are taxed at 0%, 15% or 20% depending on taxable income levels.  For joint filers, those levels are:


If your income is approaching one of these thresholds, check out the next section of the blog to learn options to manage income and potentially avoid paying a higher capital gains tax.

IMPORTANT NOTE: President Biden’s proposed tax plan would see capital gains rates increase to 39.6% for taxpayers who make over $1 million per year.  We don’t know yet when or if the new rates will go into effect, so the best strategy is to be prepared.  If rates are set to increase in 2022, you may want to consider selling winners in 2021 and holding on to losers until 2022.

Reduce Your Income

Of course, reducing income is one of the major ways to reduce tax liability.  The following options should be discussed in-depth with your CPA so we can be sure the strategy fits into both your short-term and long-term plan.  We can also help you implement and track these items for reporting in 2022.

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Reduce taxable wages by
deferring bonuses to next year
Make a deductible
IRA contribution
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Contribute (& maximize the contribution) to a pre-tax employer retirement plan
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Bunch itemized deductions into 2021
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If over age 70 ½ & you don’t itemize - make a contribution to a qualified charity using a direct distribution from an IRA.
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Instead of selling an appreciated capital asset (for example, stocks) and then making a cash contribution to charity, donate the asset directly to the charity. You will receive a deduction for the fair market value of the asset regardless of your cost basis.
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Maximize health savings accounts (HSA) contributions before year end.
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Use your credit card to make deductible expenditures.
You can take the deduction in 2021 even if you don’t pay the credit card bill until 2022.
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Consider converting your regular IRA to a ROTH. Even though this move will increase income in 2021, the money will be tax free coming out of the ROTH in future years. With higher taxes potentially on the horizon, this may be the time to consider it.

Gather a Few Important Documents

There are some documents that don’t come in until January or February (like your W-2 or 1099s), but on the other hand, there are some documents you need to go ahead and track down.

  1. The amount you received in the 3rd Stimulus payment.  We reported the first two stimulus payments this year when we filed 2020 returns, but the 3rd one was distributed in March, so it’s going to be reported in 2021.  Like the first two, this stimulus is not going to be included in taxable income, but we are required to report the amount you received.
  2. Child Tax Credit payments.  From July-December, American families falling into certain income thresholds (MFJ earning less than $150,00 and single filers with less than $75,000 in income) have been receiving an advance of their child tax credit (with totals being ~$3,000 per children aged 6-17 and ~$,3,600 per children under the age of 6).  This will be approximately half of the credit you normally receive with your return. You must keep track of the amount you receive each month and provide that information on your return.
Remember, you can use our client portal, TaxCaddy, to easily upload documents and send messages when you have questions.  

Schedule Your Tax Planning Appointment

Waiting until it’s time to file means you’ve waited too long.  Now is the time to meet with your accountant and evaluate your options.  Don’t wait too long to  reach out to your Avizo Group tax advisor to discuss these (and other) options to develop a customized plan designed to decrease your liability and help you reach your financial goals. 

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Allen Cave, CPA

As the Chief Value Officer of the firm, Allen take great pride in making sure our services benefit each client to help them reach their goals. 

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