5 Year-End Tax Planning Strategies for 2021

The end of the year is quickly approaching and as people turn their attention to holiday celebrations with friends and family, taxes are naturally the last thing on their minds. However, implementing one or more of these strategies at the end of the year could make a difference come tax time.

1. Max out your retirement plan

Review your retirement plans to ensure that you have maxed out your contributions for 2021. For 401(k)’s and 403(b)’s the limit is $19,500 plus an additional catch-up of $6,500 allowed for participants over age 50.  This means a person could potentially lower their taxable income by $26,000 while increasing their retirement savings.

For Traditional or Roth IRA’s you can make a maximum contribution of $6,000 for 2021 and account owners over that age of 50 may can contribute an additional $1,000.  Please note that there are earnings limits that could impact the deductibility of Traditional IRA contributions and it is best to speak with your tax professional if you have questions. While contributions to Roth IRA’s are not deductible they are still subject to earning limitations which change based on your tax filing status.

2. Qualified Charitable Distributions

Once an IRA owner reaches age 72 they will be forced to take Required Minimum Distributions (RMDs) each year, which is a taxable event. For individuals who do not need the RMD’s to meet their cash flow needs they may want to consider directing the distribution to a qualified charitable organization.  Currently, an eligible tax payer can donate up to $100,000 / year to a charity and exclude that amount from their taxable income.  Since many people who can longer itemize under the Tax Cut and Jobs Act of 2017 and do not benefit from a charitable income tax deduction, this strategy could be a great way to reduce your taxable income.

3. Gifting highly appreciated stock

For people who like to make charitable contributions at the end of the year, donating stock instead of cash be more tax efficient. Your deduction will be limited to 30% of your adjusted growth income but any excess can generally be carried forward and deducted over as many as five subsequent years.

Donate appreciated stock
Donate $10,000 cash
Sell stock and donate cash
Charitable Deduction




Ordinary Income Tax savings (Assumes 35% Rate)




Capital gains tax paid (assumes 15% tax rate on $8,000 gain)

$1,200 saved


$1,200 paid

Net tax savings




4. Tax loss harvesting

For investors who have realized significant gains during the year in their taxable investment portfolios if could make sense to employ a tax loss harvesting strategy.  Tax loss harvesting works by allowing taxpayers to use investment losses to offset any realized capital gains.  Long-term losses are first applied against long-term gains, and then against short-term gains. Meanwhile, short-term losses are applied first to short-term gains. This sequence takes place because long-term capital gains are taxed at a lower tax rate than short-term capital gains.

Example:  If you were to sell several stocks with a combined long-term gain of $20,000, the full $20,000 would be subject to 15% or 20% Long Term Capital Gains Tax Rate depending on your income.  However, if you also sold some stocks for a combined long-term capital loss of $13,000 you would be able to reduce your total realized gains to $7,000.    This means your taxable gains for the year would drop from $20,000 to $7,000, which should lead to some good tax savings.

If you do choose to implement a tax loss harvesting strategy you should be aware of the Wash-Sale Rule.  The wash sale rule states that you can’t sell a security for a loss and purchase the same security or “substantially identical” security for a period of 30 days before and after the sale date.  Violation of this rule will result in the taxpayer not being allowed to claim the loss.

5. Bunch Charitable Deductions

One of the most significant changes from the Tax Cut and Jobs Acts of 2017 was to raise the standard deduction amount (2021 – $12,550 for single and $25,100 for married filing jointly). This change means that some people who could previously deduct their gifts to charity are no longer able to do so.  One way to address that change it too use a Donor Advised Fund in order to distribute charitable   A donor advised fund (DAF) is a charitable investment account that provides simple, flexible, and efficient ways to manage charitable giving. The money or assets that go into a donor advised fund becomes an irrevocable transfer to a public charity with the specific intent of funding charitable gifts.

Example:  If a married taxpayer makes $15,000 in charitable donations every tax year and has additional itemized deductions of $8,000, they will take that standard deduction of $25,100. However, if they use a Donor Advised Fund and put two years of charitable donations ($30,000) in, they can take an itemized deduction of $38,000 in year one.  For year two they will then take the standard deduction of $25,900 (2022 Standard Deduction for Married Filing Jointly) since they will only $8,000 in itemized deductions.  By bunching the charitable giving into one year you can create $63,900 of total deductions between years one and two versus $51,000 if you only used the standard deduction.  For a tax payer this would increase your total deductions by $12,900 which could lead to tax savings.


This document is being provided for informational and educational purposes and is not meant to be taken as specific advice. Oakworth Capital Bank does not provide tax or legal advice. All decisions regarding the tax and / or legal implications of these strategies should be discussed with your tax and / or legal advisors before being implemented