There is more you can do now to prepare for next year’s tax filing besides contributing to your IRA, collecting relevant documents, and making your quarterly estimated payments. Making strategic investments during the 2021 tax year could provide credits on your next return. Planning early can help you maximize the opportunities at your disposal and ease the pain to your wallet during that April scramble.

Let’s start by reviewing IRA and 401k contribution limits. For those under the age of 50, the 2021 contribution limit for both Traditional and Roth IRAs is $6k. For those over 50, the maximum contribution is $7k. You can contribute up to the maximum any time between January of the current year and the following April tax filing deadline unless you file early. Contribution limits for 401ks are much higher, with $19.5k allowed for those under 50 and a $26k maximum for those over 50. Keep in mind that your ability to contribute to a Roth IRA phases out as your income increases, and there is no tax credit for Roth contributions since those dollars have already been taxed.

Pro tip: Consolidate old 401k accounts from previous employers by rolling them into one IRA for easier access and more robust investment options. Be sure to verify the IRA type (Traditional vs Roth) before rolling funds.

Now on to the fun part—utilizing tax optimization strategies. While AOG Wealth Management does not offer tax advice, our firm works closely with CPAs throughout the year to determine the most tax-efficient strategies to optimize investment portfolios. Given the recent proposals to raise federal tax rates for both ordinary income and capital gains, you may be interested in exploring AOG’s tax mitigation strategies for small businesses and individuals, especially those who are high-income earners or who expect to recognize significant capital gains. Besides routine strategies such as gain and loss harvesting or Roth conversions, investments in unique opportunities such as land conservation and development, natural resources, or the economic development of Opportunity Zones could reduce your tax obligation significantly. These strategies must be implemented within the current tax year to be applicable at filing time, so it is important to consult with your CPA and an AOG Advisor to determine how your precise tax situation would be impacted.

Want to learn more? You can speak with any financial advisor at AOG for details about all our tax optimization strategies and to determine whether these strategies fit your financial goals and needs.