Tax Tips for 2020
by Caitlin Combest on Sep 29, 2020
Fall has finally arrived. Cooler weather means it is time for some of my favorite things. Football Season, Hunting Season, and Year-End Tax Planning! Hey, year-end tax planning may not seem all that exciting to you, but….. I am a financial planner, it’s what I do. It shouldn’t come as a surprise to anyone in 2020, but there are a few tax issues that are not normal. This article will address the unique issues related to the pandemic for 2020 as well as some normal year-end capital gain/loss, and gifting ideas.
First, what is new in 2020? There are some rules related to retirement account distributions that come from the CAREs act to provide relief from financial distress due to the Coronavirus. Required minimum distributions for people over 70 ½ have been waived for 2020. So, if you haven’t taken your RMD for 2020, you don’t have to. If you are under 59 ½ and you took a premature distribution from your retirement account due to COVID19 hardship, you will not have to pay the 10% early withdrawal penalty that is normally applied. If you took money out of your retirement accounts for COVID related hardships, you have up to three years to repay it back to your retirement account. If you don’t repay it, you can spread the taxes owed on the distribution over three years. These special retirement account distribution tax rules in the CAREs act can be very useful to help you get through the financial difficulties brought on by the pandemic. I urge you to consult with your tax professional to determine how you may want to take advantage of these one-time opportunities.
More typical year-end tax management tasks should include reviewing your investment portfolio to see if there are tax losses or gains that should be realized. A year like this one could very well present you with the opportunity to take some gains on positions that have done well over the years and reduce the capital gains tax due by realizing some losses on positions that have taken a hit during the pandemic. Feel free to schedule an appointment if you would like my help in your analysis.
Finally, this is a good time to review any plans for charitable giving or gifting to heirs. Remember, if you are making gifts to family members and charities, it is better, (from a tax management perspective) to give highly appreciated assets to charity and non-appreciated assets, (like cash) to your family member.
As always, feel free to give us a call if you have any questions or would like to schedule a free initial consultation.
Joe Combest, CFP