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Your 2021 Year-End Planning Checklist

Your 2021 Year-End Planning Checklist

November 25, 2021
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It may be easy to forget we're nearing the end of the year. Even during the busy end of year rush, it's a good time to reevaluate your 2021 finances and turn an eye toward 2022. What can you do now to potentially improve and streamline your 2022 budget? Below, we discuss three year-end planning steps that may make your 2022 finances run more smoothly.

Evaluate Your Asset Allocation

Each investor has their own "model portfolio"—that is, the percentage of large-cap, mid-cap, small-cap, and international stocks, as well as bonds and cash instruments they want their portfolio to represent. Even the most conservative model portfolio may shift over time as certain sectors gain value while others stagnate. If it's been a while since you looked at your asset allocation, the year-end review may be a great time to make sure your investments are still representative of your needs and goals.

Check Progress On Your Long-Term Goals

Whether your goals include saving for retirement, sending children to college, buying a new home, or stepping back from a stressful career into a lower-paying one, regular "goal checkups" to assess your progress are essential. By taking snapshots of your income, spending, investment balances, and net worth on a monthly or annual basis, you may get a better idea of how long it may take you to save up for certain goals or how much investment income you may be able to spare without tapping into your principal.

Your year-end review may also present a good time to set target goals for year-end 2022. Next year, you may have an even better point of reference to see how much progress you've made.

Most Common Tax Tips

Tax planning can be advantageous when done during the year and well in advance of year’s end. Opportunities exist for you to mitigate tax liability, which may leave more income for you and/or your family.

Generally, people put off tax planning because paying income taxes is an obligation. So, this “negative” view can cause frustration. It is often simpler to say, “Let’s see how everything shakes out between January 1 and April 15.” However, after December 31, all you can do is deal with your tax liability. On the other hand, if you take care of the tax planning now, you may save more on April 15.

Considering doing a trial tax return based on your projected personal income and deductions. Afterward, you can adjust your W-4 Form accordingly.

If you expect to have income that is not subject to withholding, review your required quarterly estimated tax payments. If you fail to have enough tax withheld or make sufficient estimated tax payments by the end of the year, you may be subject to penalties and interest. Adjust your W-4 or estimated payments to make up any shortfall.

It may be beneficial to keep an eye on what is happening in Congress. Tax reform is an ongoing process, and there may be more changes ahead.

If you can control when you receive income or take deductions, consider deferring income into next year if you expect to be in a lower tax bracket. Likewise, accelerate your deductions if you expect to be in a higher tax bracket this year as opposed to next. If you expect a tax change for the upcoming year, you may want to revisit this issue.

Watch out for the alternative minimum tax (AMT) if you expect to have any large tax items this year such as depreciation deductions, tax-exempt interest, or charitable contributions. To avoid the AMT, consider strategies such as re-positioning assets or delaying charitable contributions.

However, if you are subject to the AMT, consider accelerating next year’s income into this year if your regular tax bracket would be higher than the AMT rate. If your itemized deductions increase the likelihood of triggering the AMT and do not generate significant tax savings, consider postponing deductions into next year if you are subject to the AMT this year.

By considering the above tips and establishing the most suitable strategies for your situation, you may optimize your opportunities and mitigate your liability. Consult a tax professional for more information according to your unique circumstances.

Important Disclosures:

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Asset allocation does not ensure a profit or protect against a loss.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

This article was prepared by Liberty Publishing, Inc.

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