9 Year-End Tax Planning Strategies High-Net-Worth Individuals Need to Know for 2021– November 23, 2021 by Laura Sefcik

The election of a new president in 2020 created much speculation regarding changes to tax law, but minimal lasting changes actually took place in 2021.

While the Consolidated Appropriations Act and American Rescue Plan modified and expanded some tax provisions for 2021, we still rely on the Tax Cuts and Jobs Act (TCJA) of 2017, Setting Every Community Up for Retirement Enhancement Act (SECURE Act) of 2019, and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) of 2020 as the basis of our year-end tax planning strategies.

Key areas for high-net-worth individuals to focus on include:

  • Child Tax Credit
  • Charitable contributions
  • Retirement planning benefits
  • Qualified Opportunity Zone Program
  • Unemployment income

Below are our top nine planning ideas you may want to consider implementing this year.

1. Retirement Planning

Take advantage of the opportunity to maximize your retirement contributions by contributing pre-tax dollars; this will lower your overall taxable income. The limits for this year are:

  • If you are under age 50 you can contribute up to $19,500/year to your 401(k) plan.
  • If you are age 50 or older you can contribute up to $26,000/year.
  • The 2021 traditional and ROTH IRA contribution limits are $6,000 for individuals under 50 and $7,000 for those 50 years of age or older (although the amount you can contribute to a ROTH is reduced at higher incomes).
  • Self-employed persons contributing to a solo 401(k) can contribute up to $58,000.

The SECURE Act gave us some additional guidance. If you turned age 70 by July 1, 2019, you are not required to withdraw your required minimum distributions (RMDs) from your IRA until age 72. Also, individuals with traditional and ROTH IRAs can make regular contributions to their plans due to the removal of the 70 ½ age limit. Finally, a 10-year time limit was placed on distributions from an inherited IRA account.

The CARES Act provided guidelines for retirement plans that applied to tax year 2020 only, so make sure you are in compliance with the following for 2021: 

  • Those required to take RMDs must start taking them again in 2021.
  • From January 1, 2020, to December 30, 2020, you could take distributions of up to $100,000 for qualified individuals for COVID-related expenses. If you are following the pro rata method, 2021 is year two of three that you must include these distributions in income. If you chose to repay the loan, it should be repaid by the end of 2022.

You may also want to consider a ROTH conversion. Instead of paying the tax on your pre-tax retirement account when you withdraw funds, this planning idea allows you to convert a traditional IRA to a ROTH IRA and pay the tax on your retirement income upon conversion. Even though tax rates are scheduled to revert to pre-2018 levels after 2025, such tax rate changes could come sooner should a new law be passed.

2. Taxes & Children

Under the Kiddie Tax rules, children under the age of 19 and college students under the age of 24 with unearned income of more than $2,200 will now be taxed at their parents’ rate. If children only have interest and dividend income of $11,000 or less, the parent may be able to elect to include that income on their return rather than filing a child’s return.

The American Rescue Plan expanded the child tax credit for 2021. The credit is now up to $3,600 per qualifying child under age 6 and $3,000 per qualifying child from ages 6 to 17. Taxpayers filing jointly who have up to $150,000 of adjusted gross income are eligible to receive the maximum credit.

The child tax credit can also now be pre-paid in monthly installments, $300 for children under 6 and $250 for children ages 6 to 17. Taxpayers can receive half of the total credit in advance and the other half will be claimed on their 2021 tax return. IRS Letter 6419 will be issued in January to provide the total amount of advanced child tax credit payments that were received. This information will be needed when preparing your 2021 tax return. Eligibility for advanced payments was determined by the taxpayers 2019 or 2020 tax return.

If your 2021 income is expected to be higher you may want to consider opting out of advanced payments through the Child Tax Credit Update Portal. If the credit you receive in advance is more than you are eligible for on your 2021 tax return, you will likely need to repay your excess credit to the IRS. Consult your tax adviser to determine if you qualify for repayment protection.

3. Charitable Contributions

The Consolidated Appropriations Act has extended two CARES Act changes. First, the increased adjusted gross income (AGI) limitation on cash charitable contributions was extended into 2021, allowing you to deduct charitable contributions up to 100% of your AGI. Any contributions over 100% of your AGI will be carried forward for use in a future year. Non-cash contributions made in 2021 will not qualify for the increased limit but can be claimed under the normal limits. In addition, for those taxpayers who take the standard deduction, there is a $600 maximum “above-the-line” deduction allowed for MFJ taxpayers in 2021, up from the $300 deduction in 2020. To qualify for this deduction, you must have made cash donations to a qualifying charity.

Contributions made to donor-advised funds or private foundations do not qualify for either of the above 2021 deductions but can be deducted according to normal limits.

If you itemize as a result of your charitable contributions, you may want to determine if it would be beneficial to set up a donor advised fund. This would allow you to make a large, single-year contribution to maximize your tax deduction. This strategy allows you to “bunch” your contributions into one year, where you benefit from itemizing in that year and then take the standard deduction in the other years. You can donate the cash — or, even better, appreciated stock — into a donor advised fund and receive the charitable deduction, then use the funds to donate to a charity at a later time.

Consider making charitable donations directly from your traditional IRA if you are age 70 ½. These donations are not included in your gross income or as an itemized deduction. It may be more beneficial to do this now since you will be depleting your IRA balance before tax rates most likely increase.

4. Health Accounts

For Health Savings Accounts (HSAs), the 2021 annual contribution for a family has increased by $100 from $7,100 in 2020 to $7,200 ($3,600 for individual). If you are 55 or older there is an additional $1,000 catch-up contribution you can make. In addition, if you have a Flexible Spending Account (FSA), make sure you monitor the balance in your account. You may lose funds not used by the end of the plan year.

5. Harvesting Capital Gains or Losses

You should analyze your specific tax situation to determine which option is right for you in 2021 if you are expecting large capital gains:

  • Consider paying the tax this year since there is the possibility of an increase in tax rates in 2022. 
  • Work with your financial adviser to harvest capital losses and sell some of your underperforming stocks to offset your gain.
  • If you expect to have an overall capital loss, consider generating capital gains to offset your loss. You can then carryforward any capital loss over the $3,000 allowable current year loss to a future year, subject to additional limitations.

6. Net Investment Income (NII) Tax

As with previous years, reducing NII is important to reducing the related NII tax. Where possible, you should consider the following:

  • Maximizing retirement plan contributions to reduce your modified adjusted gross income,
  • Postponing net capital gains or harvesting losses to offset your gain,
  • Contributing to your health savings account,
  • Selling property with losses,
  • Spreading a large gain over a number of years by using an installment sale,
  • Using a Section 1031 exchange to defer gain,
  • Donating appreciated securities to a qualified charity, or
  • Altering the tax characteristics of your investment.

7. Estate Tax Planning

The gift and estate tax and exemptions have been increased for inflation in 2021 to $11.7 million for individuals and $23.4 million for married filing jointly. Many taxpayers are no longer subject to the federal estate tax until at least 2026. Here are some items to consider:

  • Continue making annual exclusion gifts — up to $15,000 to any individual per year.
  • If you are under the exemption amounts, focus on income tax basis planning.
  • Make sure all of your estate planning documents are up to date; non-tax-related estate planning remains critical.

8. Qualified Opportunity Zones

The Qualified Opportunity Zone (QOZ) program created by the TCJA incentivized long-term investment in low income and economically distressed communities by deferring capital gains tax when taxpayers invest those gains into QO Funds. A taxpayer with realized capital gains from an unrelated party has 180 days to invest in a QO Fund and can defer that gain until certain requirements are met. The original deferred gain is reduced depending on how long the QO Zone Fund is held. Post-acquisition appreciation on the QO Fund investment is permanently excluded from tax if an investment is held for 10 years or more.

Even though investments made in QO Zones can take place until December 31, 2026, December 31, 2021, is the deadline for an investment to meet the five-year holding period requirement. This qualifies the investment for a 10% basis set-up and related gain exclusion. You should evaluate any potential investments carefully and discuss them with your investment and tax advisers.

9. Unemployment Income

If you claimed unemployment in 2021, it’s important to know the federal and state taxability of that income. Federal regulations have reverted to pre-2020 rules, all payments will be taxable and must be included in your gross income. The federal and state tax associated with this income may add up quickly, so make sure you are prepared for the additional liability.

An additional $300 per week was issued by the federal government from December 27, 2020, to March 14, 2021. To qualify for this supplemental income states were required to have a “return to work” plan in place for taxpayers to follow. If you did not have withholding taken out of your payments, consult your tax adviser to see if a quarterly estimated payment is necessary.

What Else You Should Know Before Year-End

  • The standard deduction increased to $25,100 for married filing jointly, up from $24,800 in 2020.
  • The state and local tax deduction continues to be capped at $10,000.
  • Section 199A, Qualified Business Income Deduction (QBID), continues to allow a maximum deduction of 20% of qualified business income from a pass-through entity. Owners of specified service trade or businesses (SSTB) are not eligible for this deduction if their taxable income exceeds a certain threshold. To qualify for this deduction without limitation, an owner’s income will need to fall below the $164,900 phase-out threshold for individuals ($329,800 married filing jointly). Owners of an SSTB become completely phased out at $214,900 ($429,800 for those married filing joint) and are no longer eligible for the deduction.
  • A third round of one-time Recovery Rebate Credit (stimulus check) was issued to qualifying individuals in early 2021 as part of the ARPA of 2021. The amount received will be reported on the taxpayer’s Form 1040 and if the taxpayer’s credit exceeds the calculated amount on their 2021 tax return, the taxpayer will not be required to pay back the excess. If the credit received was less than the amount calculated, the taxpayer will be entitled to an additional credit on their 2021 tax return. The rebate credit amounted to $1,400 for individuals and an additional $1,400 for qualifying dependents.


Work with your advisers now to evaluate your financial situation and take advantage of some of these strategies before December 31, 2021. Taxpayers should also be aware that the Build Back Better Act, which recently passed in the House, is currently making its way through the Senate and includes changes to tax law that could begin soon. Stay tuned.

Contact Laura Sefcik at lsefcik@cohencpa.com or a member of your service team to discuss this topic further.


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Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.