King recommended six tax-conscious planning moves for advisors to consider before year’s end.

Accelerate Income And Capital Gains For 2021
“We need to consider if pulling income into 2021 will help you avoid some of the negative consequences of having a high income level in 2022,” said King. “We know what the tax rate is now, and we know for someone retiring how their income might be changing.”

Defer Deductions And Delay Capital Losses To 2022
There are a lot of reasons to defer expenses to 2022, said King.

“If your adjusted gross income is higher next year so you end up losing a deduction, you need to take that into account,” she said. “Since the cap on the state and local tax deduction came in a year ago, we see more people itemizing. Watch out for the other tax brackets. If you have income that pushes you into the proposed 39.6% income tax bracket—and the capital gains tax is raised to 39.6% as well—that’s going to require a very different kind of planning than most advisors have had to conduct before.”

If capital gains tax rates increase, it’s worth either taking gains in 2021 or deferring losses to 2022.

Increase Charitable Giving In 2022
For clients interested in setting up several years of donations at one time, a donor-advised fund offers the opportunity to bunch these donations into a single tax year to allow clients to itemize their deductions.

But King also recommends advisors consider qualified charitable distributions (QCDs) from traditional IRAs to reduce a client’s future tax burden, and QCDs cannot be made to donor-advised funds.

“There are benefits to both,” she said. “We have to run the numbers for each client to see which is best.”

Convert To A Roth
“Like we’ve said, if you have more IRA assets than you will need to support your lifestyle, this is a good time to convert,” said King. “The traditional IRA is now the worst asset to inherit, while the Roth is the best. There just aren’t a lot of opportunities to change the worst-treated asset, tax wise, to the best.”

Create And Fund An Irrevocable Trust With Tax Exemptions
“I think this is a good use of the lifetime gift and estate tax exemption,” King said. “We’re working with a lot of people doing this actively, starting last year in anticipation of the 2020 election. It’s important to have the trust set up properly and to have the right fiduciary in place to act as trustee. Be thoughtful about the terms of the trust, because when you sign it, you might want to consider that you might not be able to change it.”