Tags: Year End Planning

There’s still time to evaluate your 2022 tax situation

There is still time to evaluate your 2022 tax situation and make some year-end planning decisions.

Timing of Income and Deductions

If you have the ability to control the timing of your income, you can accelerate or defer income and deductions to manage your income tax brackets. It is imperative to not only look at 2022, but also what lies ahead in 2023 and the future to time income, deductions, retirement plan contributions, charitable gifts, etc.

Consider Year-End Investment Decisions

Work with your investment advisors to develop a plan for tax efficient investing. Consider waiting until January to sell so that you realize your capital gain or loss next year if you are in a higher marginal tax bracket in the current year and expect to be in a lower one in the following year. If you expect to recognize a capital gain this year, you should review your portfolio for possible capital losses that can be used to offset the gains. If you have any capital loss carryforwards, you should review your portfolio for capital gain opportunities to make use of such carryforwards.

Maximize Charitable Contribution Deduction

Taxpayers, especially those that are close to the standard deduction, may want to consider bundling their charitable contributions into 2022 to take advantage of this deduction. Contributing to a donor advised funds (DAFs) is a strategy to consider as well. DAFs allow you to make a substantial charitable contribution in a high-income year while directing the payment of the actual grants in future years.

If AGIs limits are not a factor, consider donating appreciated securities. When stock is donated to qualified charitable organizations, you receive a tax deduction for the full fair market value and avoid paying capital gains tax on the appreciation.

An additional option is making a qualified charitable distribution from your IRA required minimum distribution.  If you already took your RMD for 2022 this is a strategy to consider for 2023.

Health Savings Accounts

Consider setting up a health savings account (HSA). HSAs allow you to deduct contributions to the account, the investment earnings are tax-deferred until withdrawn, and any amounts you withdraw are tax-free when used to pay qualified medical expenses. Once you reach age 65 you can withdraw funds for any reason and the withdrawal is treated much like an IRA. HSAs for 2022 may be established and contributions made by April 15, 2023.

Maximize Contributions to Retirement Plans

Contributing to retirement plans may lower AGI and allow tax deferred savings. If allowed by your retirement plan, consider Roth contributions.

Required Minimum Distributions (RMD)

RMDs must be taken by December 31. Taxpayers that turned age 72 during the year may defer the start date to April 1. In this circumstance, consideration should be given to the timing of your initial RMD based on your other income sources and your income tax bracket.

Roth IRA Conversions

Consider converting traditional-IRA money into a Roth IRA in 2022.

Reasons to consider a conversion include 1) There is no RMD requirement for Roth IRAs, 2) With the impending reduction to the estate tax exemption, taxpayers may benefit by paying the income tax now and reducing their taxable estate, 3) Taxpayers that want to leave IRA assets to their families will provide tax-free post death distributions, and 4) Tax rates are historically low.

Keep in mind that the conversion will increase your income and tax for 2022.

529 Education Plans

Maximize contributions to your state sponsored 529 plans to take advantage of state tax deductions. 529 plans can now be used for elementary and secondary school tuition as well as college or vocational school.

Avoid penalties and interest

In order to avoid penalty and interest for underpayment of taxes, you must pay in 90% of your current year tax or 110% of your prior year tax through withholding or timely estimated tax payments. If your withholding has decreased and/or income has increased substantially you should consider increasing your remaining withholding or estimated payment.

Maximize Wealth Transfer Strategies

Under current law taxpayers may exclude gifts of up to $16,000 per individual per year. Consider outright gifts to children, LLC and partnerships, and non-grantor trusts.

You may also make direct payments to medical providers for medical bills or qualifying educational institutions for grade school through higher education without gift tax consequences.

The current estate exemption is $12.06 million increasing to $12.92 million in 2023. Even without any legislative changes, under current law, this exemption will sunset on December 31, 2025 and revert to approximately $6.2 million. If you have not already done so you should review your estate plan to develop a strategy which may include gifting assets now to take advantage of the higher exemption.


Please contact us if you would like to discuss year end planning. We will provide updates if any legislation is passed that affects 2022 tax plans.

    Tags: Year End Planning

    Important Actions to take BEFORE December 31

    The holiday season is upon us and another year is coming to a close. We wanted to remind you that our offices will be closed from December 24 through the end of the year. We also wanted to remind you of some important action items that must be accomplished by December 31, 2021.

    Payment of deferred social security taxes

    As part of the CARES Act employers were allowed to defer payment of the employer’s share of Social Security tax. The first installment of the repayment of the employee’s portion of the deferral must be made by December 31, 2021; however, for 2021 since December 31 is a holiday, payments made by January 3, 2022, will be considered timely. If the employer does not repay the deferred portion on time, penalties and interest will apply to any unpaid balance. Click here to read “Repayment of Deferred Employer Social Security Taxes.

    Payment of Business Entity taxes and for PTEs electing to be taxed at the entity level

    Any business subject to state entity level tax should make the state tax payment by December 31 to take advantage of the tax deduction on their 2021 income tax returns. This includes the numerous states that enacted legislation for SALT workarounds that allow businesses to pay and deduct tax at the entity level.

    Establish new 401K

    For those self-employed individuals looking to save on taxes for the 2021 tax year, a solo 401k may be a good solution. A solo 401k allows for both employee and employer contributions and must be established/adopted by December 31, 2021.

    Take Required Minimum Distributions

    Distributions from 401(k) plans and traditional IRAs must be taken by Dec. 31 each year after age 72. The penalty for missing a required minimum distribution is 50% of the amount that should have been withdrawn. This penalty is in addition to the regular income tax on the distribution.

    Roth conversions

    If you’ve decided on a Roth IRA conversion for your existing retirement account the deadline is December 31, 2021, for the 2021 tax year.

    Charitable giving

    To be eligible to claim a tax deduction for charitable contributions in 2021, you must complete the contribution by December 31. Contributions made to a charity by credit card are deductible in the year that the charge is made; therefore, contributions made by credit cards that are processed on December 31 will be deductible for the tax year.

    529 contributions

    529 plan contributions are not deductible from federal income tax, but over 30 states offer a state income tax deduction. For most states the deadline to qualify for an annual state deduction the contribution must be made by December 31.

    Business Autos

    If you use a vehicle in your business, please be sure to note the odometer reading on December 31st.  In addition, the personal use of the business auto should be calculated and the value of the personal use added to the employee’s wages on their Form W-2. Click here to read “Taxation of Employees’ Personal Use of Company Vehicles.

    Health Insurance – S Corporations

    Health insurance premiums paid for employees who own more than 2% of the corporate stock, must be reported as taxable wages on the shareholder’s Form W-2; however, the premiums are not subject to Social Security or Medicare Tax.  For affected employees, the annual amount of their health insurance should be reported to your payroll company prior to your last payroll.  (Note: The health insurance cost will be identified separately on the Form W-2 and the shareholder will deduct the cost on their individual income tax return as self-employed health insurance.)

    We want to thank you for your continued business and wish you, your family and employees a Happy Holiday.


    The BSB Team is here to help! Have questions? Let us know below!

      Tags: Year End Planning

      Year End Tax Planning for Businesses

      President Biden’s proposed reconciliation bill, better known as the “Build Back Better” plan, is still being debated by our legislators and proposed tax provisions are being revised daily. This uncertainty makes tax planning difficult and may leave little time for year-end moves; however, there are some items already in place that should be considered for 2021 and 2022.

      Employee Retention Credit (ERC)

      The ERC retroactively ends on September 30, 2021. Employers should review their records to determine if they are eligible to claim this credit. Consideration should be given to amending prior payroll tax returns. If claimed, the ERC reduces compensation deductions for tax purposes by the amount of the credit so any amendment to prior year payroll tax returns to claim the credit may result in an amendment to income tax returns. The amount of the credit may be well worth the extra work.

      Pass-Through Entity Tax

      Several states have enacted legislation that allows a workaround of the $10,000 limit on state and local income taxes. These work arounds allow pass-through entities (PTEs) to pay and deduct state income taxes at the entity level instead of the individual level. Maryland is one of the states that allows a work around. The tax must be paid in 2021 to take advantage of this deduction.

      Net Operating Loss Carryforward

      Beginning in 2021 and for all subsequent tax years, federal net operating losses (NOLs) generated can only be carried forward. In addition, NOLs generated may only offset 80% of current year taxable income. If it appears that you may have a loss in 2021 you may want to consider accelerating income or deferring expenses to offset or minimize this loss.

      Retirement Savings Plans

      If you have not already established a retirement plan you may want to consider taking advantage of this benefit. Some plans must be established and funded by December 31, 2021, whereas others may be established and funded through the extended due date of the business tax return. Depending on your tax bracket this can provide significant tax savings by reducing taxable income.

      Business Meals Deduction

      Legislation passed in early 2021 included a provision allowing a 100% deduction for meals and beverages provided by a restaurant during 2021 and 2022. A “restaurant” is defined as a business that prepares and sells food or beverages to retail customers for immediate consumption, regardless of whether the food or beverages are consumed on the restaurant’s premises. A restaurant does not include a business that primarily sells prepackaged food or beverages, not for immediate consumption, such as a grocery store, specialty food store, liquor store, drugstore, convenience store, newsstand, vending machine, or kiosk. Businesses should review their chart of accounts and general ledger to ensure that expenses qualifying for the 100% meals deduction are readily identifiable.

      Research & Development Tax Credit (R&D)

      The R&D credit remains in place for 2021; however, there will be significant changes in 2022. Domestic research and experimentation expenses incurred after December 31, 2021 must be amortized over five years and foreign research expenses must be amortized over 15 years. Businesses should consider maximizing 2021 deductions.

      Nexus caused byTelecommuting Workers

      As a result of the pandemic, many companies have changed their work from home policies and are allowing employees to telecommute. Employees working from home may create nexus in other states and require new reporting and payment obligations for both income and employment taxes. Companies should review the location of their employees and review the rules of each state.

      Please contact us if you would like to discuss year end planning. We will provide updates if any legislation is passed that affects businesses.

        Tags: Year End Planning

        Year End Planning for Individuals

        Year-end planning for 2021 is particularly challenging due to the uncertainty of the tax provisions in the current legislation known as the “Build Back Better” plan. While we wait to see if legislation passes and if there will be any provisions that affect 2021 we want to provide the following information for your tax planning consideration.

        Tax Bracket Management

        If you have the ability to control the timing of your income, you can accelerate or defer income and deductions to manage your income tax brackets. It is imperative to not only look at 2021, but also what lies ahead in 2022 and the future to time income, deductions, retirement plan contributions, charitable gifts, etc. to avoid higher tax brackets and the net investment income tax (NIIT).

        Tax Efficient Investing

        Work with your accountant and investment advisors to develop a plan for tax efficient investing that Includes: 1) increasing investments in tax-favored or tax-deferred assets; 2) deferring or accelerating gain recognition, 3) reviewing tax-sensitive asset location – know the state laws for taxing real estate sales, retirement benefits, stock options, etc.; 4) managing income, gains, losses and tax brackets from year-to-year; and 5) managing capital asset holding periods.

        Maximize Charitable Contribution Deduction

        For the 2020 tax year, a new above-the-line deduction was allowed for up to $300 of charitable cash contributions, even if you claimed the standard deductions on your tax return. This deduction is extended to 2021. The deduction is per person, so married couples filing jointly may deduct up to $600.

        The adjusted gross income (AGI) limit for cash contributions made to qualified charities remains at 100 percent through 2021. Donations to donor-advised funds and private foundations are not eligible for the increase. Taxpayers, especially those that are close to the standard deduction, may want to consider bundling their charitable contributions into 2021 to take advantage of this deduction. Donor advised funds (DAFs) is a strategy to consider as well. DAFs allow you to make a substantial charitable contribution in a high income year while directing the payment of the actual grants in future years. Be sure to review the rules when considering a DAF as there may be minimum contribution requirements and investment fees.

        Taxpayers with high income, where AGIs limits may not be a factor, should consider donating appreciated securities. When stock is donated to qualified charitable organizations, you receive a tax deduction for the full fair market value and avoid paying capital gains tax on the appreciation.

        Taxpayers aged 70.5 or greater that do not itemize but instead take the standard deduction, may want to consider making a charitable qualified distribution (QCD). A QCD is a withdrawal from an IRA that is made directly to an eligible charity and reduces your AGI. Contributions must come out of traditional IRA accounts and they count towards your RMD. The maximum allowable QCD is $100,000 per person.

        Health Savings Accounts

        Consider setting up a health savings account (HSA). HSAs allow you to deduct contributions to the account, the investment earnings are tax-deferred until withdrawn, and any amounts you withdraw are tax-free when used to pay qualified medical expenses. Once you reach age 65 you can withdraw funds for any reason and the withdrawal is treated much like an IRA.

        To be eligible for an HSA, you must have a high-deductible health plan (HDHP) and you must not be enrolled in Medicare. For 2021, to qualify for the HSA, your minimum deductible in your HDHP must be at least $1,400 for self-only coverage or $2,800 for family coverage.

        HSAs for 2021 may be established and contributions made by April 15, 2022.

        Maximize Contributions to Retirement Plans

        Contributing to retirement plans may lower AGI and allow tax deferred savings. If allowed by your retirement plan, consider Roth contributions. (See further information below regarding Roth conversions.)

        Required Minimum Distributions (RMD)

        RMDs have resumed for the 2021 tax year and must be taken by December 31. Taxpayers that turned age 72 during the year may defer the start date to April 1. In this circumstance, consideration should be given to the timing of your initial RMD based on your other income sources and your income tax bracket.

        Roth IRA Conversions

        Consider converting traditional-IRA money into a Roth IRA in 2021.

        Reasons to consider a conversion include 1) There is no RMD requirement for Roth IRAs, 2) With the impending reduction to the estate tax exemption, taxpayers may benefit by paying the income tax now and reducing their taxable estate, 3) Taxpayers that want to leave IRA assets to their families will provide tax-free post death distributions, and 4) Tax rates are historically low.

        Keep in mind that the conversion will increase your income and tax for 2021.

        529 Education Plans

        Maximize contributions to your state sponsored 529 plans to take advantage of state tax deductions. 529 plans can now be used for elementary and secondary school tuition as well as college or vocational school.

        Child Tax Credit (CTC)

        For eligible taxpayers in 2021, the CTC was increased and became fully refundable. Advanced payments of these credits began in July and are spread over the six months from July through December 2021. If your gross income is over the threshold limits and you did not opt-out, receiving these monthly payments may increase taxes due or reduce refund amounts in April.

        Avoid penalties and interest

        In order to avoid penalty and interest for underpayment of taxes, you must pay in 90% of your current year tax or 110% of your prior year tax through withholding or timely estimated tax payments. If your withholding has decreased and/or income has increased substantially you should consider increasing your remaining withholding or estimated payment.

        Estate planning, income shifting and gifting

        Under current law taxpayers may exclude gifts of up to $15,000 per individual per year. Consideroutright gifts to children, LLC and partnerships, and non-grantor trusts. In addition, consider conversions of grantor trusts to non-grantor trusts. This will allow you to shift income, thereby avoiding the higher tax brackets, NIIT, & §199A Limits.

        You may also make direct payments to medical providers for medical bills or qualifying educational institutions for grade school through higher education without gift tax consequences.

        The current estate exemption is $11.7 million. Even without any legislative changes, under current law, this exemption will sunset on December 31, 2025 and revert to approximately $5.5 million. We previously advised updating estate plans with your attorneys. If you have not already done so you should review your estate plan to develop a strategy which may include gifting assets now to take advantage of the higher exemption.

        Please contact us if you would like to discuss year end planning. We will provide updates if any legislation is passed that affects 2021 tax plans.