Don't Mess With Taxes

UPDATE, Nov. 2, 2021: OK, #1 in this list now is moot. But the 5 remaining November tax moves  still apply. 

Autumn leaves in our backyard stream. (Photo by Kay Bell)

You can stop staring at your calendar. October is gone, apparently roaring through 2021. Today really is the first day of November.

Once you regain your temporal composure, it's time to get busy. Even though some of us started dealing with upcoming year-end festivities last month (guilty!), it's now officially holiday season.

And we have to adjust to the time change. And vote. And, of course, deal with our taxes.

If you don't know where to begin, here are six November tax moves that you might want to consider.

1. Don't miss today's deadlines. Yes, we have another bit of calendar confusion. Nov. 1 is the tax due date for some taxpayers. Today is the extended filing deadline for some Michigan and Mississippi taxpayers who endured major disasters earlier this year. It's also the day for recipients of advance Child Tax Credit payments to opt out of the remaining monthly deliveries or make income changes online that affect the credit amounts. If any of that applies to you, get to work. Now!

2. Review your portfolio. Despite lingering COVID-19 pandemic effects, the market has been doing quite well. If your holdings reflect that, it could be to cash in some of your long-term holdings. The capital gains tax on these sold assets generally is lower than your ordinary tax rate.

If, however, your holdings were hard hit, they still could provide some tax benefits. As part of your overall asset analysis, you might decide to sell some of those losing assets. This stock loss harvesting can offset any gains you made on other holdings.

Capital losses also could be especially beneficial to higher income taxpayers facing the 3.8 percent Net Investment Income Tax (NIIT). This surtax, part of the Affordable Care Act, is still in the tax code. It applies to the unearned income, not adjusted for inflation, of single or head of household filers with modified adjusted gross incomes (MAGIs) of more than $200,000 and married joint filers earning $250,000 (or $125,000 if married and filing separately). Harvesting losses can help high earners reduce their NIIT amount.

And if in taking those losses you discover you have more of them than gains, you can claim up to $3,000 in bad investments against your ordinary income to help lower that taxable amount. Then get a new financial adviser!

3. Fine tune your Form W-4. By now, you should have a good idea of what your final 2021 earnings will be. If it looks like you might be getting a refund when you file next year, consider adjusting your withholding now. That way, for the final pay periods of 2021, you'll get more of your hard-earned money in your pay rather than some of it being held for months by Uncle Sam.

If turns out instead that you need to have more withheld, making the change this month will spread out the added tax bit over several paychecks. That will help ensure you don't have to come up with a big payment when you file your taxes next year.

Either way, use the IRS' withholding calculator to help you have the correct amount of tax taken from your remaining 2021 pay.

4. Spend down your FSA. If you have a tax-favored medical flexible spending account (FSA), now's the time to check that balance. Have you submitted all your qualifying medical expenses for reimbursement? If not, do so. Do you still have a substantial amount of pre-tax dollars in the account? Then think about what health-related costs you can spend them on in the next few months. You want to do that because, despite the tax benefits, this workplace benefit has one big drawback. It's a use-or-lose proposition.

Many companies still require staff to use up FSA money by the end of the benefits year, which is Dec. 31 for most. If you don't, your company gets to keep all unused funds. Some companies give FSA owners a grace period until March 15 to use the money. Others allow a rollover of at least some of the accounts' funds.

COVID relief law changes have provided more latitude in these areas. But make sure you know what your employer's policy is when it comes to FSA fund usage.

Your best, and easiest, bet is to spend down your FSA completely to ensure that it's not wasted. Making those decisions in November can help you avoid panic FSA spending at the end of the year.

5. Be charitable. Most of us have a lot to be thankful for, even without this month's Thanksgiving holiday. Many, however, are not as fortunate. If you can spare it, consider giving to Internal Revenue Service-approved charities that can help out those families.

Food banks are especially strapped this year, due to coronavirus supply chain issues. Homelessness remains a major problem for urban and, increasingly, more rural areas. And many are struggling to recover from the major disasters that hit the United States this year.

Regardless of what charity you choose, don't forget to get your tax thanks. In addition to help out and making your feel good for doing good, you likely will be eligible for a tax break on your 2021 taxes. And you don't even have to itemize. You can claim cash donations up to $300 if you're a single filer, $600 for married couples filing jointly, right on Form 1040. You can find more about this tax break and other charitable tax benefits in my post 4 enhanced tax-deductible donation options this year.

6. Feather your nest eggs. Don't forget to give to yourself, especially your future, older self. If you haven't already maxed out your retirement accounts, add more now. Yes, you do have until next April 15 to make IRA contributions, either traditional or Roth, for the 2021 tax year. But the sooner you get your money into the account, the sooner it has the potential to start to grow tax-deferred or tax-free. And if your traditional IRA is deductible, a contribution will reduce your taxable income for this year.

When it comes to workplace retirement plans, Dec. 31 is the last day you can put money for the current tax year into your 401(k) or similar plan. Get to your benefits office ASAP to bump up your contributions for the final few pay periods of 2020. This post on inflation adjustments for retirement plans has specifics on how much you can put into your nest eggs this year.

More November tax moves: Yes, that's a lot to think about in this month that just showed up on our doorsteps. And you need to consider tax moves while also making holiday plans and still coping with coronavirus challenges.

But doing so could help you cut your 2021 tax bill. So try to make some time for tax moves that fit your situation this month.

And if you're industrious and want some more tax topics to think about, check out the ol' blog's right column for a few more November Tax Moves. They're under the so-named heading, just below the countdown clock ticking off the time left here in tax year 2021.

Once all this tax stuff is done, you still have time to work on your Turkey Day spread and get in some early holiday shopping and celebration planning. And you'll be able to do all that without that nagging year-end tax voice in your head.

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