2021 Tax Planning Checklist

The deadline to file your 2021 taxes is April 18th. To help you prepare, we’ve created this tax planning checklist highlighting the documents you should collect and the questions you should answer to ensure that filing your 2021 taxes is as easy and tax-efficient as possible.

Tax documents and receipts.
When you meet with your tax preparer, make sure you have copies of the reports and statements they’ll need to file to your taxes. These documents may include, but aren’t limited to the following:

• IRS Form 1099 – issued by each investment account that distributed non-employment income, such as interest, dividends, capital gains, or distributions, or from any retirement account in which you took a distribution, or conducted an IRA rollover or a Roth conversion.

• Employer W-2 if you’re an employee, or employer 1099-NEC or 1099-MISC if you operate as an independent contractor.

• Charitable giving receipts – charities don’t issue a standard form to record donations, they usually send a letter or email thanking you for the donation. Make sure you have such documents detailing the donations you wish to deduct; if you don’t have one, you can ask the organization to provide one.

• Home office receipts – if you’re itemizing and claiming expenses relating to your home office, you’ll need to provide receipts for all the expenses you wish to claim.

Are you bundling charitable donations?

If you give to charity annually, you may want to consider bundling your donations into one large donation, and itemizing your deductions for that year, and taking the standard deduction ($12,550 single, $25,100 MFJ for 2021) for the off years. If you pair a bundled charity donation with other deductions, such as medical and home office expenses, your itemized deductions may exceed the standard deduction.

Does a donor advised fund make sense?

If you give to charity regularly and are looking to lower your adjusted gross income, capital gains, or estate tax liability, a donor advised fund (DAF) might make sense. You can contribute up to 60% of your AGI in cash, or 30% of AGI for donated stock or property to a DAF. You can set up your own DAF or contribute to an existing one (Schwab, Fidelity, and others sponsor DAFs clients can contribute to). Bundling several years of donations into one year allows you to create a larger deduction for that year and still distribute the money over the next few years from the DAF. Contributing a bundled donation to a DAF lets investment returns start compounding right away, which may allow you to make larger distributions from the DAF in the future.

Do you have dependents?

If you have children age 17 or younger, and your MAGI is under $200,000 (single) or $400,000 (MFJ), you may be able to claim a Child Tax Credit, even if you are filing with the standard deduction. The Child Tax Credit for 2021 is $3,000 for kids ages 6 – 17, and $3,600 for kids 5 and under.

Do you own restricted stock options that vested in 2021?

Many compensation plans include equity in the form of company stock that is awarded according to a vesting schedule set by your employer (a common schedule vests 25% every year over a four-year period following a first year probationary period, or cliff). When your stock vests, it is automatically added to your investment account and its value is treated as earned income. It’s a good idea to check your account and your vesting schedule to plan ahead for the impact it may have on your marginal tax rate. If you sold any company stock or stock options, standard long and short capital gains rules apply.

Do you have home improvements that you can deduct?

If you renovated your kitchen or added a new roof, those renovations may qualify as improvements, which means they may also be deductions. Replacing a garage door or fixing a faucet would probably be designated as a “repair” and would likely not qualify. But the list of improvements is extensive; energy efficient renovations, modifications for medical care or mobility, home office improvements, and rental property improvements may all qualify for same-year deductions. Home improvements for resale (like adding a pool) provide deductions the year the house is sold.

Tax-loss harvesting.

The deadline for tax-loss harvesting was December 31 for 2021; however, if you have stocks that have lost value over the course of the year, you can carryover up to $3,000 in losses to 2022 to offset capital gains from other assets. As always, keep in mind that for stocks, you need to steer clear of the wash sale rule, which prohibits buying the same stock back again within 30 days of selling. This rule does not yet apply to cryptocurrency, so if you’ve lost on crypto, you might want to take advantage of this deduction before new regulations are put in place.

Tax-gain harvesting.

There is no IRS prohibition for selling and buying back winners. So, in some cases, selling stocks that have gone up and paying the capital gains taxes now can be a good strategy. If you’re in a low federal tax bracket, you may not need to pay any capital gains tax at all. Even if you’re in a higher tax bracket, this strategy can still be a good long-term tax move. The sale will reset the cost basis, which can reduce capital gains taxes in the future. In addition to the potential tax benefits, selling can benefit your overall financial health by compelling you to rebalance your portfolio.

Are you using the 2021 IRS guidelines?

This may seem obvious, but it’s worth mentioning. Almost every year the IRS introduces new limits, rates, and rules for filing your taxes. These changes can impact maximum contribution levels, tax credits, marginal tax rates, and deductions. There were lots of changes introduced to both the 2020 and 2021 tax codes, including the child tax credit, dependent care credit, standard deduction, marginal tax brackets, and Social Security benefits. To make sure you’re using the current numbers and guidelines, visit irs.gov.

Did you max out contributions to your IRA accounts?

You are allowed to contribute up to $6,000 (total) a year to your IRA accounts, with an additional $1,000 allowed as a catch-up if you’re 50 or older. You can contribute to non-employer sponsored IRA accounts up until April 15th if you have not maxed out your contributions yet. For retirement accounts sponsored through your employer (401K, 403B, IRA, SEP), the cut-off date for 2021 contributions was December 31st, 2021.