SIMC's 2020 Tax Planning Checklist

SIMC's 2020 Year-End Tax Planning Checklist*˟

As year-end approaches, it is time to verify that we have all in order for tax year 2020.  Certain activities must be undertaken during the calendar year to obtain the desired tax effect, while others can wait until taxes are filed in April 2021.  The list below contains issues that do have a calendar year deadline of December 31, 2020.

• Maximize Employer Sponsored Retirement Plans.  You can make pre-tax contributions to your employer retirement plans such as 401k or 403b plans even if you take the standard deduction and do not itemize.   (Roth contributions are made with after-tax dollars, are subject to income limits, and have an April 2021 deadline.)

• Maximize 2020 HSA Contributions.  Health Savings Accounts (HSAs) are available for taxpayers enrolled in High-Deductible Health Care Plans.  You can make pre-tax contributions and have the funds grow tax-free if used to pay for qualified medical expenses at a later date.  Unused balances carry forward from year to year.

• Donate to Charitable Organizations.  The new tax law increased the limit of charitable donations to 60% of Adjusted Gross Income (AGI).  However, you must itemize these deductions and reach a threshold of $24,400 (for married couples filing jointly) to receive any benefit from itemizing your deductions.  Consider “bunching” your contributions by doing several years’ worth of Charitable Contributions in a single year to help get above the threshold.  A popular technique to accomplish this is the use of a Donor Advised Fund (DAF).

• Make annual gifts.   Current tax law allows each person to make a $15,000 gift to a recipient without having to use their lifetime gift and estate exemption. ($30,000 as a couple per recipient.)

• Consider 529 Plans as recipients for your gifts.  If making an annual gift as mentioned above, you can make the gift to a 529 Plan.  If the recipient of the 529 plan uses the funds for qualified education expenses at a later date, any growth of the assets is tax-free.  2019 tax law changes broadened the use of 529 Plans to include some secondary school expense.

• RMD requirements are waived for 2020.   Normally, if you are 72 or older and have an IRA or other qualified retirement plan, you must make a required minimum distribution (RMD) or face penalties.  For 2020, the CARES Act has waived RMD payments.   Even if you turned 70 ½ in 2019, and were waiting until April 1, 2020 to make your first RMD payment, this too is waived along with the regular 2020 Payment.  In December 2019, the SECURE Act raised the staring age for RMDs to 72 from 70 + ½, but this only comes into effect for 2020 onwards.   Those who turned 70 + ½ in 2019 would have been required to start RMDs now.  However, all payments due in 2020 have been waived by the CARES Act, even the first payment for tax year 2019 which could have been delayed to April 2020.  RMDs are scheduled to return to normal in 2021.

• Consider making a QCD.  If you are 70 ½ or older, and have an IRA, you may be qualified to make a Qualified Charitable Distribution (QCD).  In a QCD, you pay a qualified charity directly from your IRA.  The funds are not taxable, and the contribution counts towards your RMD for that year.  Timing issues can be important with a QCD.  Please contact your tax advisor or SIMC before making any QCDs.

• CARES Act $300 Charitable Contribution. For 2020, the CARES Act created a $300 above-the-line deduction for contributions to certain qualifying charities.  This is applicable to taxpayers even if they will be claiming a standard deduction.

• Harvest any tax losses.  Investments in taxable accounts should be reviewed to see if they contain unrealized losses.  If realized, they can be used to offset any capital gains you may be required to pay tax on.  In addition, up to $3,000 of losses can be used against ordinary income each year.  Any excess losses can be used in future years.  Transactions must be completed by Dec. 31.

If you have any questions or comments, please do not hesitate to reach out to SIMC or Kent Fisher directly.  This is not an exhaustive list of all tax matters – it is a list of common deadlines many of our clients face and is meant to be a reminder.  If you would like to have a more detailed conversation.   Please do not hesitate to contact us.

 Happy Holidays!

 *SIMC, nor any of its members, are tax accountants or legal attorneys, and do not provide tax or legal advice, you should consult your tax or legal professional.

 ˟ SIMC is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information in this document is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information.   While we have taken precautions to ensure that the content is both current and accurate, errors can occur.