Tips and Tricks

IRA’s and Plans

People who make excessive contributions to 401(k)s are on IRS’s radar. The 401(k) contribution deferral limit for 2021 was $19,500…$26,000 if 50 or older. But some folks with multiple 401(k)s might put in more than the limit. This can happen, for example, when an employee with a workplace retirement plan changes jobs during the year and sets up a 401(k) account with a new employer. 

Employees who paid in too much for 2021 can correct the error. They should notify the plan administrator and request that the excess amount and the earnings be distributed to them by April 15, 2022. If the excess is not withdrawn by that date, then the amount is included in taxable income for the year contributed and taxed a second time when ultimately paid out. 

Stock Traders

Losses incurred by stock traders are generally short-term capital losses. But there’s a way to fully deduct them. Make a Section 475(f) election. Traders who so elect must recognize gains and losses as if they’d sold their holdings for fair market value on the last day of the year. While the election is in effect, the deemed gains and losses are treated for tax purposes as ordinary income and loss. 

The election can only be made prospectively. An election for the current year is required to be done by the due date of the tax return for the preceding year. 

The deadline to make an election for the 2022 tax year is April 18, 2022.If you want to elect and haven’t done so previously, you must attach a statement to your 1040 or with your extension request. See Schedule D instructions for details. The Service generally doesn’t like to approve late 475(f) elections.