If the clients aren’t comfortable donating for a five-year period in a single year, they can double-up contributions for a two-year period and still benefit. For example, the couple would donate $60,000 in year one, and nothing in year two, and their itemized deductions in year one would be $70,000 (including the real estate tax deduction), while they’d take the standard $28,000 deduction in year two.
“Over the two years, that’s $98,000 versus the $80,000 if they made level contributions each year,” she said. “That would give them $18,000 more in deductions, which is over $6,000 of tax savings.”
4. A fourth opportunity is the still-in-play backdoor Roth conversion. While much attention has been given to retirees converting large IRA balances to a Roth to avoid required minimum distributions, this strategy can also be used every year with a client’s Roth IRA contribution.
For 2022, a client can make a traditional Roth contribution of $6,000 or $7,000 if they are age 50 or older, invested in a vehicle that shouldn’t have much value fluctuation. Then shortly after the contribution, and before the value changes, the traditional IRA can be converted to a Roth with no related tax cost since there was no growth in value. The client gets the contribution deduction in 2022, and the Roth grows with all its benefits.
5. The fifth opportunity is for clients who have made estimated tax payments based on safe harbor rules who may not need to make the fourth quarter payment if they had losses this year, Kiziuk said.
“A lot of year-end planning is about housekeeping, thinking about the compliance,” she said. “Last year a lot of clients did have large capital gains, and so they may have based their estimated tax payments and other items based on 2021, but 2022 is not turning out that way.”
Kiziuk said advisors should keep some other tax considerations in mind:
• Clients who make pass-through entity tax payments to their state, where a deduction might be allowed at the federal level, may have a large federal deduction in 2022.
• Stock options should be reviewed so the clients can decide whether to exercise them or disqualify them, considering all the various losses that might be in play.
• Tax-loss harvesting will be top of mind for many investors.
• And all clients should maximize contributions to tax-deferred accounts—such as IRAs, 401(k)s, HSAs, etc.