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#5 Your 2021 Year End Financial & Tax Planning Checklist Thumbnail

#5 Your 2021 Year End Financial & Tax Planning Checklist

Emily & Amanda discuss why these important items should be on your 2021 checklist. This list includes rebalancing your portfolio, capital-gains, tax withholding adjustments, retirement and HSA contributions, charitable giving and college savings.

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  • In the podcast episode, we estimated that 38 states gave a tax deduction for 529 deposits.  In actuality, according to the Wall Street Journal, 34 states offer tax benefits (most in the form of deductions) for 529 deposits, Here is an overview from the Wall Street Journal- The Gift-Tax Benefits of ‘529’ Plans
  • Amanda mentioned this Wall Street Journal article about the increase in people leaving salaried positions in favor of working for themselves - Workers Quit Jobs in Droves to Become Their Own Bosses
  • If you are still looking for gifts for family and friends, check out Propel's 2021 Holiday Gift Guide which includes the 529 Gift Certificate downloads we mentioned.
  • Full Transcript below

Emily Agosto (00:08):

Welcome to connecting the dollars, a personal finance podcast. I'm Emily Agosto, a CPA and financial


Amanda Vaught (00:16):

And I'm Amanda Vaught, attorney and financial advisor, both Emily and I are co-owners at Propel

Financial Advisors.

Emily Agosto (00:25):

Propel Financial Advisors is an investment management and financial planning company. We are fee-

only fiduciaries and independent registered investment advisors. I'm based in Chicago and Amanda is in

New York City, but we work with clients nationwide.

Amanda Vaught (00:40):

The purpose of our podcast is to explore personal finance topics, including budgeting, investing,

behavioral, finance, current events, and other helpful information. We also hope you'll get to know us

along the way.

Emily Agosto (00:54):

Thanks for listening.

Amanda Vaught (00:58):

Welcome back from your trip.

Emily Agosto (01:00):

Thanks! It was so nice to be out of town. And thanks to you and Danielle for recording an episode last


Amanda Vaught (01:07):

Mm-Hmm <affirmative> Yeah, it was really interesting and a lot of good information for people to figure

out what kind of accounts they should be using for their savings.

Emily Agosto (01:14):

Absolutely. and yeah, traveling right before Thanksgiving, I didn't anticipate this, but it was kind of nice

coming back to a short week and I kind of could just ease back in, but now all of a sudden it's December

and there's just so much to do and to think about in terms of financial planning and tax planning. So we

are going to talk about a few things that we are looking at for our own clients, our financial advising

clients, things

Amanda Vaught (01:42):

That, that other people can do on their own, if they're so inclined.

Emily Agosto (01:47):

Exactly. Shall we get into it? Sure. So this first thing we wanna talk about is rebalancing your portfolio. If

you have a financial advisor, they should be paying attention to the allocation of all these securities in

your portfolio to make sure it's in line with your financial goals and your risk tolerance. And if you're not

paying attention to it, it can get outta whack. And you know, if you're heading towards retirement and

you see you have 90% in equities, that might be something you wanna take a look at.

Amanda Vaught (02:17):

Yes, especially the past couple years, the stock market has gone through the roof and the bond market

has not. So for a lot of people, if you haven't rebalanced this past year, you're probably over potentially

overweight equities and you might wanna be overweight equities. It's very personal, but like Emily just

said, it all depends on your personal goals and risk tolerance for what's appropriate for you, but it's

always good to check and make sure you're balanced according to those.

Emily Agosto (02:43):

Exactly. The next thing we wanna talk about is capital gains. So this whole idea of taking tax losses or

taking gains or gains harvesting, if you will,

Amanda Vaught (02:56):

Even though the tax return is due in April, you have to do your tax planning before the end of the year.

Because after that, there's nothing you can do. So right now, you know, you have a month left to look at

some of these tax planning issues.

Emily Agosto (03:12):

Exactly. When we're talking about buying and selling, or trading securities, all of that has to be done by

the thirty-first. You can't, there's some things you can do tax wise until the tax deadline in April, but

trading is one that needs to be done by December 31st. So this is something we just wanted to point out

to remind people that you need to hold a security for at least a year before you sell it in order to qualify

for those preferred capital gains rates. And also, I know there was a lot of day trading or people that

maybe were new to Robinhood or some kind of program like that earlier this year during the whole

Game Stop frenzy. So if you have a large gain or a potential large gain there. It might be something you

want to pay a little bit more attention to this year.

Amanda Vaught (04:02):

Mm-Hmm <affirmative>. Yeah. And then what we call short term gains is for something you held for less

than a year, and that will be subject to your regular income tax rate.

Emily Agosto (04:12):

Exactly. I think that's enough on capital gains.

Amanda Vaught (04:17):

You don't wanna talk about that for an hour, Emily? We, he

Emily Agosto (04:20):

Really could. I mean, there's a lot to look at. I mean, there's yes. One thing we wanted to point out also

with capital gains is that if you have a brokerage account that someone is managing for you and they

don't know anything about your tax situation, that might be something you wanna get on the same page

with. For us as financial advisors, we do pay attention to our client's tax situation. And if we are taking a

lot of gains, we want to let them know or kind of see where they're think they're gonna land on their

taxes this year, or we try to sell other securities at a loss in order to offset those gains. So if you haven't

had a conversation with your tax advisor, financial advisor about that topic, that might be something

that you want to bring up.

Amanda Vaught (05:08):

Yeah. And it, that ties in nicely too, with the rebalancing we were talking about earlier, if you're

rebalancing and say your rollover account or your Roth or some other tax deferred account, just the

buying and selling in there, isn't gonna impact your tax return in the same way that you know, buying

and selling in a brokerage account is. So that's something that you or your financial advisor should be

keeping in mind too, that tax consequences of the trading are very different in a retirement account as

opposed to a brokerage account.

Emily Agosto (05:42):

Yes, that's very true. All right. The next thing we're gonna talk about is more just straight up tax

planning. Now's a good time to take a look at your withholdings, like on your W2. There's a lot of

people, when you start a new job, you get a W4, you fill it out and then you never think about it again.

And whenever I suggest to people to update withholdings in order to either not have a huge refund or

not have a huge tax bill at the end of the year a lot of people are intimidated by it. They think it's this

whole thing that they have to worry about with their HR department. But in reality, it's really easy. A lot

of times I'll just fill out a W4 for them with their help and hand it to them. And they can just hand it into

their HR office. Or if you work for an, an employer that has ADP or Paychex or any of the large major

payroll providers, you can usually sign up for an employee login and, or it should be provided to you

rather, and you can update your withholding there and you can do it like every month, if you wanted to,

I wouldn't necessarily recommend that. But it doesn't affect your employer - your employer is not

affected if you change your withholdings - that only affects your tax situation.

Amanda Vaught (07:02):

Yeah. That's a great point. I, I do think some HR departments make it harder than it should be, like when

I used to work at big firms. But in the past, you know, 10 years or so, it has gotten easier because like

you said, ADP and other things have gone online. It can be easier to make changes now than it used to


Emily Agosto (07:23):

Yeah. And you just have to ask. And if it is gonna be a whole situation, I mean, there are other things we

can do in terms of estimated payments mm-hmm <affirmative>, but it's gotten a lot easier.

Amanda Vaught (07:32):

And I would just add, I mean, I know some people, or a lot of people, I don't know, they prefer to get a

refund when they file their tax return. I mean, nobody wants to owe, but some people like to get the

refund. For them. It's like a fun way to get extra money. Right. But I think especially lately, the IRS is

overworked. And I saw recently, I think it was like millions of tax returns have still not been processed

for 2020. So these are people who thought they were getting refunds and they still haven't gotten the

refund. It's December, you know, for a tax return they filed months and months ago. Yeah. So, you

know, just lately with the IRS being so backed up, it just more important than ever to get your tax

situation just in order so that you're not out here waiting six months to get a refund from the IRS.

Emily Agosto (08:25):

Yes. That's a really good point. I heard this year was just especially crazy and it's probably still gonna be

crazy next year, even if there's not an extended tax season. So yeah, that's a really, really good point.

And along with adjusting your withholdings, if you're a W2 employer if you are a freelancer or someone

who receives a 1099, you definitely need to be making your estimated tax payments. I think a lot of

people, Amanda was telling me earlier, she read something regarding a lot of people starting new

businesses this year or starting their own ventures. And so if it's something completely new to you, it's

something you need to pay attention to. Yes,

Amanda Vaught (09:08):

That was in the Wall Street Journal a couple days ago. So a record number of small businesses started,

consulting, people going out on their own, which is, you know, it's great if it works out, but it does

introduce some new tax questions.

Emily Agosto (09:23):

Absolutely. So the final let's see the fourth quarter 2021 estimates are due January 15th. So if you are

one of those people, you still have to time to make an estimated payment. But if you're trying to catch

up for an entire year, that's gonna be difficult once tax season rolls around. Mm-hmm

Amanda Vaught (09:45):

<Affirmative> maybe brace yourself. Yeah. <Laugh> for your, for your tax bill. Yes. Or start saving now


Emily Agosto (09:52):

<Affirmative> Next topic is retirement contributions and also HSA contributions. So in the episode that

Danielle and Amanda recorded, while I was out, they get really into the different types of retirement

accounts and different strategies for using your 401k, your Roth, a brokerage account, or a combination

of the three. So we won't get into that now, but that's a really good episode. You should go back and

listen to it.

Amanda Vaught (10:21):

And I was just gonna say, we can link in, in show notes, but I, I mean, I would just add too that for most

people saving for retirement, the 401k is the main vehicle they use. And for most people, the 401k is not

gonna be sufficient. You do need to supplement with a Roth or a brokerage account, or an HSA could be

a great option, too. If you're eligible for that. That's one account that Danielle and I didn't get into in the

last episode about different types of accounts. But the HSA is if you have a high deductible health

insurance plan, mm-hmm, <affirmative>, you can use what's called an HSA or a health savings account.

Those are great for having but because of their tax advantages, cuz your money can grow tax free. When

you withdraw it later, you don't have to pay income tax on it. You just, you can only use that money to

pay for qualifying health expenses. And so ideally you can put money in it and then not use that money

to pay for health expenses today. And you save that money to use for your health expenses in your

retirement. Yep.

Emily Agosto (11:29):

Yes. We love HSAs. They're really can be a really helpful tool for tax planning. And then also for paying

for your medical expenses. Going back to your retirement contributions really quick, a lot of people have

received raises this year, like a one or 2% or maybe even more due to inflation. And if you haven't

increased your retirement contributions, that's definitely something you should think about. So give

your future self a raise is kind of the idea behind that.

Amanda Vaught (11:57):

Yeah. That's a great

Emily Agosto (11:58):

Point. And also with tax planning, there's been a lot of talk about Roth conversions and backdoor Roths

in the upcoming potential tax bill. So we don't quite know exactly what's gonna happen there, but now

would be a good time, if you are someone who is thinking about doing a Roth conversion or contributing

directly to a Roth, what your options are.

Amanda Vaught (12:20):

Yes, for sure. It's hard. You can't, you can't plan around a tax bill that may or may not pass. Exactly. so

it's hard to say what you should or shouldn't do, but I would definitely keep your eye on that tax

legislation, if this could potentially affect you. That's what we're well, we're keeping an eye on it,

especially cuz this impacts a number of our clients. Yeah.

Emily Agosto (12:42):

All right. Onto the next: year-end charitable gifts. Back in 2017, the Tax Cuts and Jobs Act changed the

way that we utilized this standard deduction on tax returns. It made it a lot higher. So probably about

90% of my clients take the standard deduction now where it used to be more like a 50-50 split. And

basically one of the biggest changes for people that no longer itemize is that they couldn't deduct

charitable charitable gifts, charitable counter. So in 2020 as part of the CARES Act, people were able to

deduct $300 per tax return of charitable donations. And in 2021, it is now updated $300 per person. So

if you're married, filing jointly, you can deduct $600 of charitable gifts, charitable cash contributions to

official 501c3 organizations. So it can't, unfortunately it can't be like a go-fund-me to an individual.

Emily Agosto (13:43):

It has to be to a charitable organization. And also along the lines of charitable giving, there is a thing

called QCD qualified charitable deduction. So if you are someone who is required to take minimum

distributions, so these are people over 70 and a half or over 72, depending on when you turn that age,

you need to start taking these distributions from your retirement accounts every year. And a lot of

people don't need the money necessarily if you are still working, or if you just have other sources of

income, like a pension and you don't necessarily need this money to live off of, this could be a really

good option because it not only, it doesn't count towards your income and raise your taxable income,

which can affect your social security or your healthcare.gov premiums. It's also completely deductible.

Even if you don't itemize your deductions kind of a double benefit there. Yeah. Yeah.

Amanda Vaught (14:43):

That's great. That's a great thing to take advantage of. Okay. Another, another option you can think

about if you're charitably inclined is to use, what's called a donor advised fund. So this is great if you

would like to give a large sum of money to a charity, say you've held a stock for 50 years and you've

made a ton of money on it. If you sell that stock, then you'll have to pay taxes on it from your gains, but

you could instead use what's called a donor advice fund where you could just donate the security

directly to the charity and then you will be able to give the charity more and you'll pay less taxes. Yep. I

feel like I should say that is not tax advice. That is just for informational purposes only. Yes. Right?

Absolutely. We gotta keep our disclaimers in there. Right Emily? Yes

Emily Agosto (15:33):

Yes we do. Okay. All right. Our last thing on this list is college savings. So you can do this obviously any

time of year, but since we're in the holiday season, we thought it would be a good idea to mention this.

If you have a family member or even friend who you want to give them a gift but you don't want it to

just be, I don't know, a $50 check or a hundred dollar check. You can open a 529 for them and

contribute to it on their behalf.

Amanda Vaught (16:07):

Yes. And then if you do that, you just name them the beneficiary and you put in your $50, one hundred

dollars, whatever the case may be. And then you get the tax deduction, if a tax deduction is available in

your state. Yes. And I believe, I believe it's 38 states out of 50 off a tax deduction for a 529 contribution.

Emily Agosto (16:29):

Also Amanda put together some cute PDFs in case you did wanna do this option, they're little gift card

certificates, I guess. And you can download them on our website. We'll put the link in our show notes.

Well. I think we're coming to the end already.

Amanda Vaught (16:46):

Yeah. I hope you know, our listeners found some of these suggestions useful. If they do implement any

of these, or have questions about them, I hope they reach out and let us know. We'd love to hear


Emily Agosto (16:58):

Well, thanks Amanda. Talk to you next time.

Amanda Vaught (17:01):

Okay. Thanks Emily.

Emily Agosto (17:04):

For all links and resources mentioned today, head over to connectingthedollars.com. Thank you for


Amanda Vaught (17:11):

This podcast is for informational and entertainment purposes only and should not be relied upon as a

basis for investment decisions. This podcast does not engage in rendering legal, financial, or other

professional services.