Financial Focus: End of year 2020 Income Tax savings tips - by friends

By Professor Anthony Rivieccio MBA PFA
Well the holidays are here! Glad 2020 is almost over? Sure you are!
Are you gonna leave ” tax money” to the IRS before the end of the year, 2020? Don’t let 2020 become THAT bad for you!

End of the year ” Tax Planning” is a very complex subject for many reasons. Just one , is that , year 2020 is almost gone- so, if you don’t ” tax plan now” your upcoming 2021 ” Income Tax Preparation” session with your tax person or accountant is not going to be so good.

And after all, for the sake of COVID, can’t we all use more money next spring!.
So get in touch with your representative and inquire about some last minute ideas to lower your 2020 tax liability – so you can receive a higher tax refund next spring, for tax year 2020

In our area of concentration, I decided to talk to some of my colleagues. Some of their ideas are interesting. I decided to include them- with some ” Professor” notes.

Prepay 2021 Residence Real Estate Taxes For a 2020 Discount

“In the past, prepaying real estate taxes could trigger the alternative minimum tax (AMT), but with a generous AMT exemption and a cap on deducting state and local taxes, AMT concerns are minimal.

While this benefit can be reduced by the $10,000 overall cap on state and local taxes, by prepaying real estate taxes in 2020 that are otherwise due before the end of 2021, taxpayers can get a discount on their 2020 taxes.”

Jason Uetrecht, CPA/PFS.

PROFESSOR IDEA. I think this works in different ways. I have for example, told many clients that , given the option, they don’t want to pay their real estate taxes for future use- they would rather get a full deduction- or not pay it at all. Depending on the client they’re are ways to implement very interesting ideas, including lowering your real estate tax payment- by lowering your federal and/ or state taxes. Why? Well , if you are subjected to the $10,000 limit by counting all the taxes you pay- then why pay them extra and get no deduction in return? And you could, ( if that’s the tax plan) put the extra money in your pocket- and even start that process– before you do your 2020-2021 Tax Preparation.

Excellent Opportunity for the Charitably Inclined

“For taxpayers thinking about making a large charitable contribution, 2020 offers an excellent opportunity to go all in. Unlike other years where charitable gifts are limited by a percentage of AGI (adjusted gross income), charitable donations made in 2020 to qualifying organizations are 100% deductible.
So, if you do decide to make a large donation, this offers a great opportunity to also lower your overall taxable income for the year. If you plan right—everybody wins.”

Maggie L.N. Rauh, CPA/PFS

PROFESSOR NOTE: I could not agree more and I’m glad I’ve taught many Clients in the last 20 years the tax & Goodwill importance of charity. Give ” donated property” from a sweater, to kitchen appliances, to living room sections, to a car, and you’ll be helping your place of worship, a person who needs these things, and your tax refund pocketbook.

Pay Home Business Expenses Now to Lower Taxable Income

“If you have a home business or a side gig, take this time to look at your Profit and Loss Statement so you won’t be surprised by lower expenses and higher taxable income (and taxes) than expected come Tax Day 2021.

Now may be the right time to squeeze in any large business expenses you have been considering. By paying for qualified business expenses before the calendar flips to 2021, you will lower your overall 2020 taxable income.”

Brooke Salvini, CPA/PFS

PROFESSOR NOTE: You don’t have to tell me twice being a business owner. The worry , yes, is that some business expenses are starting to becoming curtailed, like meals, entertainment and traveling. So Business Tax Planning, can be just as important.

Pandemic Loan Opportunity Coming to an End

“For those impacted by the pandemic who need liquidity, there is a special opportunity expiring at the end of the year. Distributions made prior to December 31, 2020 from qualified plans provide a once-in-a-lifetime chance to borrow up to $100,000 penalty, tax, and interest-free (you do lose the upside/downside on the investments) from your 401(k)/IRA over three years.

This potential liquidity lifeline should be used very cautiously to avoid setting back your retirement savings for years. But for small business owners affected by COVID costs/loss of revenue, it could be a valuable option.”

Mark J. Alaimo, CPA/PFS

PROFESSOR NOTE: While I am not a big fan of taking money out of a 401k, of course these are not normal times. Therefore it is good that this is an option but consider using non retirement monies first

Consider a Roth IRA Conversion

“The Roth IRA conversion remains a good planning technique for certain taxpayers. Doing so creates tax-free income during retirement and provides greater flexibility than a Traditional IRA does.

In the current environment where asset values may still be low, and with the potential that tax rates may increase in the future, the Roth IRA conversion is even more attractive between now and the end of 2020.”

Dave Cherill, CPA

PROFESSOR NOTE: Roth IRA conversions care very tricky. Only on a case by case basis should one consider conversion as it should be number crunched if it’s more to one’s advantage, to pay taxes now, for tax free Retirement income, later!?.

Leverage Your Losses to Protect Your Income from Taxes

“This has been a year to remember for stock portfolios. The market downturn caused by the pandemic produced losses not seen since 2008/2009. And the rebound since the low has been equally surprising.

Now is a great time to review your investment portfolio to realize any additional capital gains and losses for the year. If you find yourself with net realized capital losses for the year, it is important to know that you can only reduce your ordinary income by $3,000. The remaining capital loss would then be carried forward into the next year.

Remember to coordinate your capital gain/loss harvesting strategy with your tax planning. If you expect to be in a higher tax bracket next year, it may be better to carry the capital loss into next year to help offset capital gains in 2021 instead of incurring capital gains in 2020.”

Oscar Vives Ortiz, CPA/PFS

PROFESSOR NOTE: The markets in COVID 2020 have been very tricky. Depending on where your portfolio is, you could have made 20%- or lost 20%!. If your in the latter category, then yes discuss with your tax person the right way to use your ” capital loss” for tax savings purposes.

Gift Today to Reduce Future Estate Tax

“If you are looking for ways to gift your wealth while reducing your estate tax exposure, don’t forget that you can give up to $15,000 to as many beneficences as you would like each year without paying a gift tax or decreasing your lifetime estate tax exclusion amount.

This is a great way to gift your wealth without triggering a tax impact. Review this 2020 tax planning opportunity now because once the year ends it is lost.”

Mark J. Alaimo, CPA/PFS

PROFESSOR NOTE: This is an excellent way to transfer wealth and achieve tax savings. Remember, ” gifting” has stringent rules, so check with the mechanics on this with your tax representative.

Professor Anthony Rivieccio, MBA PFA, is the founder and CEO of The Financial Advisors Group, celebrating its 24th year as a fee-only financial planning firm specializing in solving one’s financial problems.