2020 Year-End Financial Check List

The end of 2020 is fast approaching. Thanksgiving flew by, and now it’s time to make sure holiday presents and plans are set as we gear up for cold weather and making the most of these special times while staying safe. Self-care is more important than ever during these uncertain times, and your personal finances can use a little extra love this season too. Here are several simple year-end tax planning ideas to consider before you ring in the new year to improve your personal finances.

Charitable Giving

Reduce your 2020 tax bill and help a cause you are passionate about! Consider giving appreciated securities rather than cash to get a double tax benefit – you reduce your taxable income and avoid capital gains tax on the appreciation. Also consider bunching charitable gifts into one year to optimize your itemized deductions with the new tax law. Do not forget that in 2020, due to coronavirus relief legislation, all taxpayers may receive a tax deduction of up to $300 for individual filers and up to $600 for married couples for charitable gifts, even if you do not itemize.

Tax Loss Selling

The markets had a volatile year. Give yourself a little gift by selling positions that are at a loss to offset other capital gains realized this year and keep some extra tax savings in your pocket. Tax losses are valuable assets that shouldn’t be ignored.

Retirement Account Contributions

Maximize your contributions to your employee retirement plans like your 401k before December 31st. IRA and Roth IRA accounts may be funded up until the April 15th tax deadline for tax year 2020.  Using retirement accounts may reduce your 2020 taxable income, and your future retired self will thank you for saving early!

Roth Conversions

If you don’t have as much taxable income for 2020, consider a Roth Conversion this year. This means converting your pre-tax IRA assets to after-tax Roth IRA assets and paying tax on that conversion now, while you’re in a low tax bracket. This is a gift that keeps on giving – the assets in your Roth IRA grow completely tax free! Just make sure to avoid common pitfalls as there are some special nuances to completing a Roth conversion.

Funding 529 College Savings Accounts

Certain states (such as New York) offer tax deductions on state income taxes for 529 contributions. These must be made in the calendar tax year. College savings accounts have many other tax benefits, so look to create or fund one of these accounts before the end of 2020 for your children or grandchildren.

Revise Estate Plan and Gifting Strategies

You are entitled to gift up to $15,000 per beneficiary that you can exclude from gift taxes for 2020. This means you can give $15,000 to your son, another $15,000 to your niece, and another $15,000 to as many different beneficiaries as you like this year and avoid any gift tax and reduce your taxable estate. If you are married, your spouse can also make the same gift to the beneficiaries. For certain individuals, it could make sense to make gifts or set up certain trust structures to maximize the current high estate tax exemptions, which may be a political target to lower in the future.

Evaluate Financial Goals

Year-end is a great time to reflect on personal finance goals from the prior year and set future goals. Use this time to look at how you are saving, your current asset allocation, and other financial planning actions your family should be taking. Be sure to check with your wealth advisor or tax professional before taking any action.

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