By Glen Kenes
Many of us may be thinking about Thanksgiving and the holidays. It is not too early to be thinking about the end of the year.
At this time of year, you often hear advice to take steps before year end to limit your tax liability. Yet 2020 is a unique year in a variety of ways — while many of the normal rules regarding managing income and timing deductions still apply, new provisions for 2020 have been implemented by The Coronavirus Aid, Relief and Economic Security (CARES) Act that may impact your year-end tax planning. Consider if any of these actions make sense for you:
Reconsider required distributions: Required Minimum Distributions (RMDs) from workplace retirement plans or IRAs are optional due to the CARES Act. If you haven’t taken your RMD for this year, you can let your money continue to grow. If you have taken your RMD, there is a 60-day window where you can redeposit those funds in your IRA and eliminate the claim to an RMD.
As another option, if you have earned income from work you may want to take all or part of your RMD for this year and invest some or all of the proceeds in a Roth IRA. This allows you to build up your Roth savings, which ultimately can qualify for tax-free distributions later in retirement and aren’t subject to RMD rules.
Capitalize on deductions: The standard deduction for 2020 is $12,400 for a single person and $24,800 for married couples filing a joint return. At that level, most people claim a standard deduction rather than itemizing deductions.
In 2020, you can claim an additional $300 for cash contributions to qualified charities. Be sure to take advantage of that opportunity before the end of the year. This is a one-time deduction for those who don’t itemize.
Take early withdrawals if needed: If your financial circumstances have been directly affected by COVID-19 (such as a job loss), or you or others in your household have been diagnosed with the virus, you can tap your retirement savings.
If you have not yet reached age 59 1/2, you can do so without penalty if you qualify, but the early distribution must occur before the end of the year. The tax burden associated with these early distributions can be spread out over three years.
Harvest investment gains or losses: Given the market’s volatility this year, you may want to consider “harvesting” capital losses. This is accomplished by selling investments in a loss position and using those losses to offset gains you realized when selling other investments. Capital losses can also be used to reduce up to $3,000 of earned income in a given year.
Be prepared for changes: With an election upon us, there could be changes in tax laws that might impact everything from tax brackets to estate tax laws starting next year. This may be an additional consideration as you make your year-end plans. Be sure to consult with your financial advisor and tax advisor before finalizing your decisions.
Glenn Kenes, CRPC, is a private wealth advisor and managing director of Barber Kenes Retirement Solutions, a private wealth advisory practice of Ameriprise Financial Services, Inc. in Auburn. He specializes in financial planning and asset management strategies and has been in practice for 24 years. Contact him at: BKRetirementSolutions.com or 530-823-0710, 470 Nevada Street, Ste. 200, Auburn, CA 95603.