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Investment Tax Planning 2020

There are several planning areas that investors should potentially consider in doing their year- end tax and financial planning. Some or none may apply to you, but it is worth your consideration to see which ones apply to your circumstances and talk with your trusted advisor.

Capital Loss Harvesting: This is one we highlight and recommend every year. Investors sitting with any securities with unrealized losses in their taxable accounts should consider whether it makes sense to sell before year-end and realize a loss for tax purposes. This loss can be used to offset taxable gains, and, if you offset all of your gains, you can deduct an additional $3,000 against ordinary income.

Also, any realized losses of over $3,000 can be carried forward to offset future capital gains.

IRA Distributions: The Coronavirus Aid, Relief & Economic Security Act waived required minimum distributions (RMDs) for 2020. This gives investors who are required to take money out of their IRAs the unique opportunity to skip the distribution for the year. However, we think investors need to look at their tax estimates for 2020 before deciding this. If your taxable income is lower than usual due to Covid, it may make sense to take something out of the IRA, if you can do it at no tax or in the lowest bracket or convert some funds to a Roth IRA.

Roth Conversions: These are especially attractive this year due to the historically low tax rates that exist currently (and these rates are not likely to last with the huge deficits we are running presently) and possibly lower income for many due to Covid. Once funds are converted, the funds in a Roth IRA grow income tax-free forever and are not subject to future RMDs.

Estate Gifting: The 2020 Federal Estate and Gift Tax exemption is $11,580,000 per person ($23,160,000 for a married couple). These figures are scheduled to go back to $5 million & $10 million after 2025 but could go back sooner if there is a change in control in Congress and the White House. Any couple that has an estate of $10 million or more should consider whether outright gifting or Irrevocable Trust funding might make sense.

IRA Beneficiaries after the Secure Act: The Secure Act eliminated the stretch IRA for most non-spouse beneficiaries. Beginning with deaths in 2020, most non-spouse beneficiaries will have to take the entire IRA out by the end of the tenth year after the IRA owner dies. Investors should revisit their beneficiary selections and make sure they will still accomplish their goals post mortem.

This article is for informational and educational purposes only and should not be relied upon as the basis for an investment decision. Consult your financial adviser, as well as your tax and/or legal advisers, regarding your personal circumstances before making investment decisions.