INDIANAPOLIS — It’s that time of year: holiday parties, gift-giving and tax-planning.
With just one month to go in 2021, Casey Marx with Crown Haven Wealth Advisors has tips on how to best set yourself up for tax season.
He said there are moves to consider before the end of the year that could decrease your tax liability. The further ahead you think about your tax situation, the better chance you have at reducing your tax burden, he added.
Many tax rules follow the calendar year, meaning you’ll want to make any tax-saving moves before Dec. 31.
Marx said right now you should consider converting traditional IRAs and 401(k) plans to tax-free accounts like a Roth IRA.
“The downside is that, right now, you're going to be paying taxes when you convert that money, but we're in a historically low tax environment right now and we think taxes are probably going to go up in the future, Marx said. "So, in retirement, the benefit of that is that your money is going to be tax-free when you take that income. That's something that is super valuable, especially as that's one of the things that we really can't control.”
Marx said taxes are a legislative risk and something we need to strategize around. Another pre-tax move involving charitable donations for those over the age of 72 is to make required minimum distributions so the IRS can tax them. Marx said making a qualified charitable donation is a win-win situation.
“So you can take that money out of that IRA and send it directly to a qualified charity and you bypass the income taxes that you would normally incur for taking that income distribution and it saves you on taxes and it allows you to do something really nice with that money,” Marx said.
Remember, the money must go directly from your IRA to the charity to ensure the distribution does not count toward your taxable income for the year.
This is a lot to take in and Marx has more tips you can see more from him here.