2020 Year-End Planning Guide

November and December are always important times for investment and tax planning. Are there actions you need to take before December 31st passes and what should you be doing now to plan for next year? It is important to evaluate all the opportunities and potential issues set before you. And, with the CARES Act this year, there are new twists to consider in year-end planning. Here is a quick list of topics that might be appropriate for you to review. Give us a call if you need any help strategically thinking through these.

Retirement Plan: Seize Opportunities and Avoid Missteps!

• Make sure you have optimized your retirement contribution opportunities.

  • Leverage any and all company matching programs.

  • You may be able to deduct annual contributions of up to $6,000 to your traditional IRA and $6,000 to your spouse’s traditional IRA.

  • If you are 50 years old or older, take advantage of catching up on IRA contributions and certain qualified retirement plans. You may be able to contribute and deduct an additional $1,000 in your traditional IRA.

  • This may be a good year to make Roth IRA, backdoor Roth IRA, or mega backdoor Roth contributions (applicable to some 401(k) plans).

• Avoid taking IRA distributions prior to age 59½. Otherwise, a 10% early withdrawal penalty may apply (there is an exception in 2020 due to the CARES Act).

• Consider converting from a Traditional IRA to a Roth IRA if in a low-income tax bracket.

• Look to defer your RMD in 2020 (also part of the CARES Act).

• If you are a business owner, look to maximize the use of a SEP.

Regular Investments: Make Sure You Are Tax-Efficient!

• Explore tax loss harvesting (offsetting gains and losses), or just taking losses to reduce AGI.

• Make sure to avoid mandatory mutual fund distributions (generally in the middle of December).

• Look at giving away appreciated assets to avoid capital gains and receive a potential income tax deduction.

• Explore using ETFs in lieu of mutual funds to reduce the required annual mutual fund distribution of realized short-term and long-term gains.

Income Planning: Defer or Reduce Income (Or Even Accelerate). Know Your Marginal Tax Bracket This Year and Next, and Plan Around It!

• Defer your year-end bonus, the sale of capital gain property, and receipt of distributions to defer income to the following year.

• Accelerate any income potential if you anticipate higher taxes in future years.

• Manage your taxable income to qualify for the 199A Qualified Business Income (QBI) deduction, if applicable.

• If you have trusts, review distributions to ensure taxes are being minimized between the trust and beneficiary, where possible.

• If you are still working (and younger than 70), defer Social Security to avoid income taxes on benefits.

Deductions: Evaluate Your Potential Itemized Deductions Versus the Standard Deduction and Optimize Each Year - and Across Years with Bunching!

• In December, make your January mortgage payment (i.e., the payment due no later than January 15 of 2020) so that you can deduct the accrued interest for the current year that is paid in the current year).

• Consider making two property tax payments every other year to get the full SALT deduction when you itemize.

• Maximize the utilization of itemized medical expenses by bunching such expenses in the same year to meet the threshold percentage of your AGI.

• Consider using a Donor Advised Fund to bunch charitable giving and to capture deductions that may be missed with the standard deduction.

• Maximize your Health Savings Account(s), if possible.

Gifting Strategies: Give to Loved Ones to Reduce Future Estate Taxes! [Estate tax exemptions are very high today at $11.58mm per person but these are set to be reduced in 2026 (and perhaps sooner) and acting today may help in the future.1]

• Review the use of annual gift exclusions - currently $15,000 per individual receiver.

• Directly pay for school and medical expenses – using unlimited gifting exemptions.

• Fund a 529 Plan for a future student. You can superfund up to 5 years (annual gift exclusion) in one year.

• Consider intra-family loans to leverage low cost loan structures.

Charitable Giving: Give to Those in Need and Decrease Your Taxes!

• Give an outright charitable gift of cash for an immediate income tax deduction. With the CARES Act you may be able to deduct 100% of your AGI (in 2020 only)!

• Contribute to charities using appreciated stock in place of cash to reduce capital gains in your portfolio while generating an income tax deduction.

• Utilize Qualified Charitable Deductions (instead of RMDs) to donate to charity from your IRA - you can donate up to $100,000 under favorable tax provisions.

• Set up a Donor Advised Fund for an immediate income tax deduction and to distribute gifts to charities over time as you see fit. Bunching several years of charitable contributions into one year with a gift to a DAF makes your contributions more tax efficient, particularly if you have a higher income year.

Other End of Year Activities

• Use up your FSA ($550 can be rolled over in 2020). Don’t let it go to waste.

• Review your Medicare enrollment options. (Make sure the IRS has your current income information, particularly if your income has reduced!)

• Review your wills and estate documents to ensure they are current.

Everyone’s situation is different and some of these tips may apply while others will not. In addition, this list is not exhaustive. If you need help exploring your tax and other year-end planning opportunities, please give us a call.