maximize year-end taxes after a layoff or early retirement


Clients struggling with layoffs or the plunge into retirement may have some tax planning options later in the year, top consultants say.

According to Pew Research, 28.6 million baby boomers said they were no longer employed by the third quarter of 2020, out of a total cohort of 71.8 million. That is 3.2 million more exits than in the same period in 2019.

Whether someone is leaving the workforce for good or planning to return for the right opportunity, their income and tax bracket can be significantly lower in 2022 compared to 2021, which will affect year-end decisions.

“When managing someone’s money, understanding their tax position is very, very important,” said Dale Brown, chairman of the board of directors of Salem Investment Counselors in Winston-Salem, North Carolina, on CNBC’s 2021 FA 100 list second is.

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Move income to 2022

Someone who retires or leaves work in 2021 may be looking for ways to grow their income in 2021-2022.

For example, if someone needs to tap into estimated portfolio values ​​between jobs to cover the cost of living, they can wait until January 2022 to sell investments, which will push the capital gains into the lower-income year, suggests Brown.

And if a married couple’s taxable income is $ 83,350 or less for 2022, they can pay 0% long-term capital gains on those gains, he said.

“Whether you are retiring or being laid off, it is true almost everywhere that you want to move income from a year of higher taxes to a year of lower taxes,” Brown said.

Other steps could wait for retirement plan payouts until 2022, postpone bonuses to year-end, or postpone business income to January.

Accelerated withdrawals through 2021

If someone is listing tax deductions, they can also look for ways to accelerate depreciation through 2021, Brown said, with charitable gifts usually offering the most flexibility.

For example, married investors can donate for multiple years in 2021, a tactic known as “bundling” to exceed the standard $ 25,100 withholding. The move includes several years of charitable giving with a tax break for 2021.

You really get the best of both worlds.

Steven Check

President of Check Capital Management

Funds recommended by donors, a popular way to pool gifts, allow someone to make a large upfront contribution while donating from the account over several years.

“You’re really getting the best of both worlds,” said Steven Check, president of Check Capital Management in Costa Mesa, Calif., No. 4 on the FA 100 list.

“You get the deduction in a higher income year and take the time to put the money where you want and even spread it out over a couple of years,” he said.

Tax consequences

While speeding up withholding or deferring income can lower taxes for certain applicants, the plan can backfire if someone rejoins the workforce and earns more than expected in 2022, which, among other things, creates an even higher tax burden.

For example, a higher adjusted gross income can increase Medicare Part B and Part D premiums two years later.

“You have to sit down and look at the numbers,” Brown added. “That’s the only way to do it.”

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