There is still time in the final quarter of the year to take actions that can favorably impact tax liability for the full year and help to get ready for 2022. The American Rescue Plan Act of 2021 (ARPA), as well as various prior legislation, changed many rules for 2021 and influence year-end tax planning. But even more important are pending law changes that have a significant impact on what to do taxwise before the new year.

Timing Income and Deductions

Whether to defer or accelerate income and deductions to the extent possible is a perennial question. It is more complicated now with the prospect of an increase in the top tax rate for individuals to 39.6% (up from 37%) as well as a 3% "millionaires" surtax (applicable for joint filers with income over $5 million, or 2.5% million for other individuals), a hike in the corporate tax rate to 26.5% (up from 21%), and an increase in the top rate on capital gains and qualified dividends to 25% (up from 20%). What's more the increase for capital gains would apply to transactions after Sept. 13, 2021. It has traditionally been the general thinking to defer income so that taxes are similarly deferred, while accelerating deductions to minimize taxes. That general thinking must be adapted to the proposed changes, as well as to each taxpayer's situation.