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Year-End Tax Planning Checklist, Episode #36 Thumbnail

Year-End Tax Planning Checklist, Episode #36

While unfortunately there’s no silver bullet to avoid paying taxes entirely, there are a number of things you can do to reduce the amount of taxes you do have to pay. In this episode, we share our year-end tax planning checklist and walk through some of the different areas to consider and specific strategies you can implement. We cover employer retirement plan contributions, Health Savings Accounts, 529 college savings plans, charitable giving, and backdoor Roth IRA contributions. 

Outline of this episode

  • The year-end tax planning issues to be aware of [0:24]
  • The most significant way most physicians can save on taxes [1:14]
  • Review your health savings account contributions [4:17]
  • College savings accounts (529 accounts) can be a tax-savings vehicle [8:15]
  • Charitable giving can help you avoid taxes [12:47]

Take advantage of your employer’s retirement plan options

401K and 403B are great opportunities, as well as 457B plans. If you are not making “Roth” qualified contributions to these plans, they allow you to make pre-tax contributions, which means you can reduce the amount of tax you have to pay today. Each account has a limit to how much you can contribute each year… for 2021the employee contribution limit is $19,500 for 401K, 403B, and 457B plans (if you are under 50 years of age). If you are over 50 years of age, you can make an additional $6,500 contribution. These limits apply to each account, so if you have multiple accounts, be sure to keep that in mind. How does this apply to year-end tax planning? Check to see if your contributions for these accounts are taking advantage of the maximum amount you can contribute. If not, and if you’re able, adjust your remaining pay period deductions to maximize your tax savings by making increased contributions.

Review your health savings account contributions

A HSA (Health Savings Account) is not always available to physicians, but if you do, it’s a great way to save on taxes. Contributions to these accounts are tax-free and the funds can be withdrawn for health care costs, it comes out tax free. At age 65, you can withdraw it for any purpose but you will have to pay taxes on every dollar you withdraw. It’s often said that these accounts offer triple deductions — tax free contributions, tax free growth, and tax free withdrawals — which is correct if these accounts are used properly. If you are eligible, look into these HSA accounts as a possible tax-savings vehicle.

529 accounts (education savings accounts) can help with tax planning as well

529 accounts were originally intended to provide a tax-free way to save for college room and board expenses. But through the years the qualified educational expenses have been expanded. Now you can use a 529 account to pay for books, fees, and equipment to be used for education, up to $10,000 in student loan debt, and private K-12 costs (though not in Michigan). Each state has its own criteria regarding what qualifies as a 529 expense or not and how much you are allowed to contribute tax free (since 529 plans receive no Federal tax deduction on the front end). You can also use these plans to contribute on behalf of others, and even yourself. 

This episode also includes strategies regarding charitable contributions and back-door Roth IRA account contributions.

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