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Private Client Services Year-End Planning

The old tax adage is to defer income and accelerate deductions before year-end. In the throes of a global pandemic and uncertain election, the generic advice holds true unless you believe tax rates will change materially in 2021. The analysis below identifies some specific considerations for 2021. As always, your personal tax situation and plan are unique, and we recommend you obtain individualized tax advice from a qualified professional.

Income Sources and perspectives:

*anyone 55 or older, do not forget about your catch-up contributions that increase the maximum you can contribute

High Net Worth Individuals/Investors Executives/Wage or Self-Employed Retirees
Loss-harvesting to offset other capital gain realized during the year

Max deductible net capital loss remains $3,000 for year after offsetting against capital gain.

Utilize health and dependent care Flexible Spending Accounts (FSAs) in 2020 / 2021

Be sure to use your funds for qualified expenses, saving pre-tax dollars.  Review your upcoming elections based on changing needs

Maintain adequate records for any COVID-related retirement distributions

These may not be subject to penalties.

Be wary of wash sale rules
When repurchasing the same stock within 30 days of sale across all of your holdings, losses are limited.
Maximize your deductible contributions towards your Health Savings Account (HSA)*.

Applies only if you have a qualified high-deductible health plan.

Consider Roth conversions

If you are in a lower tax bracket today than you anticipate in the future, it may be time to convert.

Review the rental vs. personal use of real estate holdings
Especially for vacant properties in the pandemic, to better utilize mortgage interest and real estate taxes.
Revisit withholding elections

Ensure you are sufficiently withheld at the federal and state tax level, including other pre-tax elections for 401(k) plans and parking/transportation expenses in a COVID environment

No Required Minimum Distribution (RMD) requirements this year

If you have waited thus far to take yours, it is not required this year.

Be aware of the preferred long-term capital gain tax rates of 0%, 15% and 20%

At various levels of income, you can pay lower, preferred tax rates on certain income.

Maximize your retirement plan contributions

Review the limits for your 401(k) or self-employed retirement plans for the year.

For those turning 70 ½ in 2020, you now have until age 72 to take your first RMD
The 3.8% Net Investment Income Tax exists today

This is not new for certain high AGI taxpayers, but stay tuned for a Supreme Court ruling on the Affordable Care Act.

Ensure certain self-employed retirement plans are established before year-end

Set aside the available funds to make the contributions later as future contributions are permitted before your 2020 returns filing date.

Contribute and maximize your deductible and nondeductible contributions to IRAs*
Employees cannot deduct out-of-pocket expenses for their home office, but self-employed individuals can

Track your expenses and review the home-office deduction alternatives.

Stretch IRA rules changed for non-spouse individual beneficiaries

Now you have a maximum of ten-year stretch, but it does not need to be equal over the ten years.

Defer bonuses as applicable until early 2021

Deductions for all:


  • Lower Limits – 2020 has a lower 7.5% of AGI medical expense floor, moving to 10% of AGI in 2021
  • No Doctor RX Needed – certain over the counter medications and menstrual care products are qualified medical expenses (FSAs and medical deductions)

Mortgage Interest –

  • Refinancing Frenzy with Legacy Acquisition Indebtedness – Limitations on mortgage interest on new loans from 2018 at $750,000 acquisition debt, but consider legacy acquisition debt through interest tracing
  • Mortgage Forgiveness/Canceled Debt Exclusion – This relief on QPRI forgiveness is extended through 2020 only
  • Taxes –
  • Limited to $10,000 Still – State, Local, Property and Real Estate Taxes still capped.

Charitable –

  • $300 Above-the-Line Deduction – Donate at least $300 before year-end for an above-the-line deduction.
  • Cash Donation Limitation Increased To 100% of AGI – Consider cash donations to qualified charities as the AGI limitation is raised from 60% to 100% for 2020 only (this is particularly effective in years of Roth conversions and other AGI increasing events; note the higher AGI limit applies only to contributions made directly to public charities, and not to other charitable entities such as donor-advised funds, supporting organizations, or private foundations).
  • Contribute to Donor-Advised Funds – Defer the donation decision to a particular organization while receiving benefits for the donation today. Great for appreciated securities.
  • Special Donations for Full FMV vs. Basis to Private Foundations – Donation must be of qualified appreciated stock. Overall still subject to 20% AGI limits

Miscellaneous –

  • Receive State Benefit for Misc. Itemized Deductions Subject to 2% – While the misc. itemized deductions subject to 2% expenses for 2020 is still disallowed at the federal level; few states still permit the deductions when itemizing.
  • Personal Casualty and Theft Losses May Be Deductible – These must occur in a federally-declared disaster area. Review the outstanding insurance claims to effectuate a deduction.

General –

  • Bunch Your Deductions – Apply bunching strategy on medical, charitable and mortgage expenses in one year if you are close to exceeding the itemizing threshold.
  • Itemize on Federal to Receive State Benefit – Often, itemizing at the federal level produces a benefit on your state filings as well. Particularly effective in 2020 when AGI for many taxpayers is reduced.

Gifting, Estates and the Family Legacy:

  • Make all annual exclusion gifts – maximize the $15,000 per donee/person annual exclusion gifts
  • Superfund the 529 plan contributions up to $75,000 per account/done.
    • Bonus – These plans may provide a state-level tax deduction depending on account owner and state rules.
  • Prepay tuition and medical expenses directly for gift recipients – these remove assets from your estate and are not taxable gifts or reduce the annual exclusion limits
  • Take advantage of the low interest rate environment:
    • Offer intra-family loans at the very low, applicable federal rates posted by the IRS
    • Execute sales to Intentionally Defective Grantor Trusts freezing the estate value of assets transferred in Trust
    • Charitable Lead Annuity Trust funding can provide income to charities today with principle to your beneficiaries later
    • Grantor Retained Annuity Trust funding can transfer future growth of the assets at low cost and risk
  • Take advantage of the large lifetime gift tax exemption of $11.58 million per person:
    • Complete gifts to donees and irrevocable trusts in 2020
    • Fund Spousal Lifetime Access Trusts
    • Fund Intentionally Defective Grantor Trusts
  • Gift Income-Producing Property – while potentially subject to the kiddie tax, the investment income will not be subject to net investment income tax (3.8%)
  • Start Tax Basis Planning:
    • Consider gifting appreciated securities to avoid capital gains tax and a higher estate tax value should the exemption be reduced in future year
No action should be taken without advice from a Withum Tax Professional because tax law changes frequently, which can have a significant impact on this guide and your specific planning possibilities. Reach out to discuss your individual situation as year-end approaches.
Author: Billy Thomas, CPA | wthomas@withum.com

Year-End Tax Planning

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