Five Tips for End-of-Year Tax Planning - Adviser Investments

Five Tips for End-of-Year Tax Planning

November 20, 2020

The holiday season means the year is nearly over. With that in mind, we have five tax tips for you to consider before the calendar flips to 2021.

  1. Take Advantage of Charitable Deductions: If you are looking for ways to lower your 2020 taxes through deductions, charitable contributions are a popular way to go. Click here for our podcast on the topic, and read our discussions on “bunching” contributions as well as other more advanced charitable giving strategies from earlier this month.
  2. “Harvest” Your Losses: Losing money is never fun, but there is a silver lining to selling an investment at a price below what you purchased it for—a lower tax bill. You can use the losses to offset the gains you’d otherwise owe taxes on from other parts of your portfolio. And if your overall losses are greater than your gains, you can apply up to $3,000 against your ordinary income for the year. If you have losses beyond that, they will be carried forward to future years. Plus, as long as you wait 30 days, you can choose to buy back the investment you sold at a loss.
  3. Contribute to Retirement Accounts: Review what you’ve contributed to your retirement accounts so far this year—think 401(k)s, traditional IRAs, Roth IRAs, SEP IRAs and health savings accounts. If you haven’t hit your limits and have cash available, now is your chance to potentially minimize your tax bill while investing for your retirement. Use our handy reference guide to 2020 contribution limits (and a bevy of other key financial data) to inform your year-end financial plans.
  4. Use Your Flexible Spending Account (FSA): If you have one, check the balance of your FSA. Pre-tax dollars contributed for health care expenses do not roll over every year—use it or you lose it. Confirm your deadline for spending and start strategizing on how to use that cash. What medical supplies can you stock up on? Do you have any receipts from doctor’s appointments that you can submit for reimbursement?
  5. Give Your Would-Be RMDs Time to Grow: The pandemic-relief CARES Act allows retirees to forego taking required minimum distributions from their retirement savings accounts for 2020. That means a bonus year of letting your assets compound without forced withdrawals. We’re waiting to see if RMDs are back on the table in 2021; we’ll keep you posted.

Tax planning varies from situation to situation—and it’s cloaked in jargon and acronyms—so be sure to confer with your Adviser Investments wealth management team if you have any questions. We’re here for you.

This material is distributed for informational purposes only. The investment ideas and opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

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Past performance is not an indication of future returns. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Personalized tax advice and tax return preparation is available through a separate, written engagement agreement with Adviser Investments Tax Solutions. We do not provide legal advice, nor sell insurance products. Always consult a licensed attorney, tax professional or licensed insurance professional regarding your specific legal or tax situation, or insurance needs.

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