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Year End Tax Planning Ideas - 2020 Edition

As December looms nigh, it's time to sharpen the pencils and wrap up year-end tax planning. While we believe that tax planning is a year-round endeavor, this year has thrown plenty of curveballs at us and it seems like we're constantly getting new rules (I'm looking at your PPP).

Holiday Charitable Giving

As part of the CARES Act, Congress included a provision that permits eligible individuals who do not itemize their deductions the ability to deduct up to $300 in cash contributions to qualified charitable organizations as an above-the-line deduction. The USA Today recently reported that donations have dropped during the pandemic. If you're in a position to help out your favorite charity, the $300 deduction can help act as a nice tax incentive.

Donating appreciated securities, including cryptocurrency such at Bitcoin, can have a double benefit. The first is that you do not need to recognize the gain on the asset. The second is that you get credit for the entire donation amount, which may allow you to itemize deductions. Because charities are exempt from paying capital gains on the sale of assets, more money stays intact with the charity and you potentially benefit with a tax deduction (or at least the non-recognition of gain). While it's always advisable to discuss with your tax professional, it's also a good idea to reach out to your target charity to ensure they have the capability to receive property, including securities, other than cash.

For those that must take required minimum distributions (RMDs) from their retirement accounts, a qualified charitable distribution (QCD) is a nice option to help reduce your taxable income. Keep in mind that a QCD must be a direct transfer of funds from your IRA and payable to the qualified charity. You don't need to itemize to receive the benefit.

Portfolio Trimming

As we get closer to year end, it's a good time to review your portfolio and consider harvesting losses on securities. The capital losses can be used to offset against capital gains. If you have more losses than gains, up to $3,000 can be deducted against other income, including wage or business income, with the balance carried forward to be used in the future. Be mindful of the wash sale rules.

There's also a planning opportunity for those with gains in their portfolio. For example, if your taxable income is less than $40,00 for unmarrieds and $80,000 for marrieds, you may be able to take advantage of the 0% capital gain rates. It's important to keep in mind that taxes on capital gains are but one component and increasing your taxable income, even if it's at a 0% capital gain rate, may trigger taxes in other areas such as Social Security; it's important to look at the big picture.

Maximize Qualified Health & Retirement Plan Contributions

With all of the unknowns in 2020 or perhaps a furlough or layoff, contributions to your retirement plans, including IRAs, 401(k)s, and 403(b)s, may have been put on hold. Same with your health savings account, if you have one. If you have the ability, consider maximizing those accounts to the extent your budget allows before year-end. One option for those that have a taxable brokerage account: consider using the brokerage account to fund your living expenses while you maximize your employer's retirement plan or your health savings account for the remainder of the year. This strategy is going to be facts and circumstances specific to the individual so it's best to run some numbers with an advisor before making a decision.

Use up Those Flexible Spending Dollars

Just a quick reminder that generally, the funds in your healthcare FSA must be spent within the plan year and are typically use it or lose it! Your plan may have provisions specific to the plan itself and not set by the IRS such as run-out provisions (allowing you to file claims after the plan year end) or a grace period (ability to use funds within 2.5 months after the plan year end) so it's worth chatting with your employer to ensure you have the details so you don't forgo the dollars.


The above is for general information only. Consult with competent investment, tax, or legal counsel to best understand your unique circumstances before implementing any strategy. There is no assurance that working with a financial professional will improve investment results. All information above is subject to change. Read our firm's disclaimer here:


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