Financial Planning, Income Tax Planning, Insight

Your Year-End Checklist for Tax-Planning

star shape made out of newspaper

2020 is nearing a close — sounds good, doesn’t it? With the end of the year, not only do we look toward a fresh start, we also take the time to ensure we’ve taken advantage of every opportunity from a tax-planning standpoint. Take a look at our Year-End Checklist to make sure you’re ending 2020 the right way, and feel free to reach out to your advisor or contact us.

Required Minimum Distributions: Required minimum distributions (RMDs) from IRAs normally must be taken by December 31, but this year’s CARES Act eliminated the requirement. Generally, if the RMD isn’t needed for spending, we recommend not taking it. Many retirees have their RMD processed automatically at the end of the year, so take the time to put it on pause if the money isn’t needed.

Capital Gains Distributions: Mutual funds and ETFs are required to pay out a percentage of their capital gains before the end of the year. For funds held in a taxable account, this can be very important and deserves attention. For tax deferred accounts (IRAs, 401ks, etc.), it’s irrelevant. In the former case, you have the option to sell the funds before the distribution to reduce your potential tax bill.

Employer-Sponsored Contributions: Have you maximized your retirement plan or health saving account (HSA) contributions for 2020 yet? In what has been a difficult year and depending on your circumstances, you might have pulled back from doing so. If you want to max out, though, the deadline is December 31. This is especially relevant for those over 50, as you are allowed to make a “catch up” contribution, which allows additional money to be deposited to these accounts. Contact your company’s HR department if you need some help.

Tax-Loss Harvesting: If you own a liquid investment in a taxable account and it is at a loss, it may be wise to sell the position. By selling at a loss, it can help offset any potential gains on your tax return. Be cognizant of the wash-sale rule, which requires you wait 30 days before repurchasing the same security.

Roth IRA Conversions: If you have money in a Traditional IRA, you can convert it to a Roth IRA at any time, but if you want it reported on your 2020 return, you have until December 31. Generally, any pre-tax money you convert will be subject to tax in the year converted, but the Roth IRA has the benefit of tax-free growth.

Charitable Donations: Most charities will accept donations up until the end of the year, but if you’re planning on making one, aim for mid-December at the latest, as charities can be backlogged with donations at this time of year. Additionally, rather than cash, appreciated securities are almost always the most tax-efficient donations. You avoid the gain and get the deduction — it’s a double tax benefit.

Spend Unused FSA Money: If your health care plan has a flexible spending account (FSA), you know it works similarly to an HSA, except you can only rollover $500 to the next year. Any dollars above $500 will be forfeited, so you’ll want to spend any excess before your plan year ends, which is typically at the end of the year or in the middle of the year. Check out for eligible items.

Gifts/529 Contributions:  Many well-off families take advantage of the annual gifting exclusion, which is $15,000 for 2020. This can be done with outright gifts or a gift to a 529 plan. If you want to maximize your gifts, including 529 account contributions, you have until December 31.



About the Author

Casey Robinson, CFP® is responsible for the strategic leadership and management of Waldron’s Wealth Planning Team, focusing on providing a best-in-class financial planning experience.

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