As a firm, it is our goal to deliver timely updates and insights on topics we are thinking about for our valued clients and their families. Since personal tax filing deadlines for 2021 loom just around the corner, here are a few topics to consider for this tax year, 2022.
Tax Loss Harvesting: The recent volatility experienced due to inflationary fears and the resulting expected rate hikes from the Fed (only exacerbated by the conflict in Ukraine), led us to look for tax loss harvesting opportunities in our portfolios. While tax year 2021 was full of larger-than-average realized gains (year-end tax loss harvesting was not possible with all-time market highs), it is our goal to utilize tax loss harvesting to offset reportable gains whenever favorable for our clients. Thus, in the middle of March, we opportunistically realized losses in three core portfolio holdings and swapped into representative ETFs. After a month, we plan to exit the ETFs and trade back into the original positions. These realized losses should help offset potential gains through the 2022 tax year and possibly beyond, but also avoid “time out of the market” for your portfolios.
Small Company Retirement Plans: One topic for California business owners to consider—as of June 30, 2022, companies with five or more employees must establish a retirement plan and offer it to their employees. If a company plan is not in effect by the June deadline, CA will automatically enroll your employees in its own generic CalSavers plan, all while progressively fining businesses first $250, and eventually $500 per employee for non-compliance. To avoid fines, businesses not interested in running their own plan may opt into the CalSavers plan. From there, employees may decide whether to participate in the plan or not, at an individual level, all without penalizing their employer for their own decisions. The CalSavers plan establishes a Roth IRA with $6,000 annual contribution limits with no required employer match. These plans are not tailored to the specific needs of your employees but do offer simplified retirement saving solutions. We are working diligently to establish plans for several clients currently and can field any questions you might have about forming a retirement plan before the June deadline as well.
Tax Cuts and Jobs Act of 2017: These 2017 Laws established favorable estate and tax planning opportunities, but many rules will sunset, or phase out, in 2026. The estate tax exclusion amount for 2022 is $12,060,000 per spouse or $24,120,000 per household. Though the taxability of an estate is ultimately calculated at the passing of one or both spouses, utilization of irrevocable gifts and trust structures can lock in the higher exemption amount during your lifetime, before expected reductions in lifetime estate exemption amounts.
Annual Gifts: If a looming estate tax bill does not concern you, but you would like to make gifts to specific persons now, you may leverage the annual exclusion amount of $16,000, per spouse, per beneficiary. Note that you may gift to any recipient of your choosing (not limited to family beneficiaries). Also, keep in mind this amount does not require a gift tax filing, can be done each year, and does not reduce your lifetime estate exclusion amount.
If you would like to discuss any of the above tax-related topics, please contact our office and ask to speak with an advisor.