President Perceptive Business Solutions Inc.
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10 Steps Clients Should Take Before Year End


As the end of the year approaches, your client's attention toward financial matters may wane. However, CPAs and other accounting professionals must keep clients on track to meet important year-end deadlines. Here, Bryce Sanders of Perceptive Business Solutions explains why qualified clients should take RMDs now, when a gift-tax exclusion might make sense and other issues to address before January 1. 

Nov 15th 2021
President Perceptive Business Solutions Inc.
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Many clients go on cruise control after Thanksgiving. As the holidays approach, their minds are elsewhere, and they put off making financial decisions. They may say, “Call me in the New Year.” As an accounting professional, you know that December 31 is one of several hard-stop deadlines in your business. Here’s what your clients should address before the ball drops on New Year’s Eve.

Tax-loss selling. The Dow Jones Industrial Average is close to a historic high. As of November 12, it was up almost 18 percent YTD. If your client has had a good year in the market so far, they should be looking at realized short- and long-term capital gains, and then determining if they can do any tax-loss harvesting.  

Realizing capital gains. We don’t know how the federal tax laws will change. Your client might choose to sell appreciated stock or other assets to book capital gains in 2021. Although we don’t know if the capital gains tax rate will change, there’s a saying that’s fitting here: “The devil that you know is better than the devil that you don’t know.”   

Year-end charitable contributions. Americans in general are generous to charities. A large number of donations are made in December, especially in the last few days of the year. Your client probably wants these donations to count as 2021 charitable contributions. Transferring appreciated stock is a smart strategy since the unrealized capital gain isn’t their problem.

Retirement plan contributions. You might be able to wait until April 15, but you don’t know what your client’s cash on hand or the condition of the stock market will be at that time. If your client is over 50 and missed some contributions, your client can make catch-up contributions. If your client has the cash available, this approach makes sense.

Mandatory retirement plan withdrawals. Required Minimum Distributions, or RMDs, are minimum amounts that a retirement plan account owner must withdraw annually starting when the owner is 72. If your client is over age 72, they must withdraw at least a certain (calculated) amount, which counts toward their taxable income. There are severe penalties if your client fails to do so. The first RMD must be taken by April 1 of the year following the year your client turns 72. Subsequent RMDs must be done by December 31 of each tax year.

Annual gift-tax exclusion. Under current rules, your client can gift up to $15,000 each to as many different people as they like without those gifts impacting their lifetime exemption amount. We don’t know what the future holds regarding the size of the lifetime exemption amount. This is a good way for your client to direct money toward their grandchildren’s college saving accounts.

The problem with mutual fund purchases in December. Many mutual funds declare and pay their realized capital gains distributions for that year during December. As with ex-dividend dates on stocks, the share price is adjusted downward at that moment. The money received by the mutual fund shareholder is taxable as a capital gain. The investor buying the shares in December just before that date may incur a tax liability even though they received none of the actual appreciation. Check when the fund you like declares and pays their capital gain. Buy after the “ex-date” and not before.

Health insurance plan changes. In case you've missed the nonstop ads on TV, the Medicare open enrollment period ends on December 7. Many retirees have a supplemental plan in addition to Medicare. The costs of plans often change from year to year. Your client should at least call the insurance agent where they buy their health insurance to see if they should take any action.

Schedule an annual review with a financial advisor. According to Northwestern Mutual, about 26 percent of surveyed Americans consider their financial advisor the most trusted advisor in 2021, up from 22 percent in 2020. Clients should call their advisors in December to get a portfolio review on the calendar for January 2022.

Complete the tax organizer. Many accountants mail a multi-page document to clients showing last year’s reported property taxes, rental income and so on. They are asked to enter the current numbers to determine if anything has changed substantially. Unfortunately, many clients ignore the form. Make sure your client is not one of them. Have your client make a note for January to set aside time to complete and return the form. Accountants do best when they see the entire picture.

Here are two other steps clients should take before year end:

Check vacation time status. Some companies have a “use-it-or-lose-it” policy, while others let employees carry unused vacation days over from year to year. Not taking vacation time can be bad for a person’s health, and it leaves money on the table.

Expense reporting. Does your client's company have a deadline for expense account reporting or reimbursement? The longer your client waits, the more difficult the task of tallying. Get it done now.

Your client might be looking forward to the holidays and not thinking about money and taxes, but they need to remain focused a little while longer so they can relax later.

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