Year-end Strategies for an Uncommon Year

December 11, 2020

The holiday season looks and feels different for all of us this year, yet we hope you can still find ways to enjoy the peace and hope of the season.  As many people isolate this month, make some time between baking and Christmas movie binging to take advantage of a few unique 2020 year-end financial planning strategies.

The global pandemic has turned 2020 into a year that many will be happy to see end, but the CARES Act and our President-elect’s stated plans for the future provide a variety of opportunities to consider. Here are a few year-end ideas.
Capital Gains

Higher capital gains rates may be a part of new tax changes in 2021.  Rates may go up just a few percentage points for some, but top earner may  be paying ordinary income tax rates. For high earners that have capacity to pay taxes this year, you may want to consider taking gains yet in 2020 while tax rates are lower.  Unlike sales made at year-end to recognize stock losses, in which you must wait 30 days to repurchase the security, booking a gain leaves you free to purchase back the position immediately after the sale.

To avoid capital gains taxes all together, you may want to think about donating appreciated stock when making your year-end charitable gifts.

Roth Conversion 

Required minimum distributions (RMDs) were waived for 2020 by the CARES Act, and if you were one of those who did not have to withdraw this year, you may want to consider converting a portion of your traditional IRA to a Roth IRA.  Converting to a Roth IRA will reduce your RMDs in the future and your Roth IRA funds can grow tax free for years to come.  Converting an IRA to a Roth IRA, does trigger ordinary income taxes on the withdrawal amount, but you may have already been paying estimated tax payments that assumed you would be taking an RMD in 2020.  If that’s the case, you may have already paid in taxes that fully cover a Roth conversion.  Be sure to check with your tax advisor how a Roth conversion will work for you.
Additionally, since the Roth conversion is a taxable event that will increase taxable income, it is another good reason to make 2020 a year for larger charitable gifts.

Charitable Giving 

This year has been especially hard economically for so many people around the world.   As we begin the holiday season you may be thinking about sharing even more this year with the people and causes that are important to you.  When planning your charitable commitments, consider these strategies:


Cash Donations

Under the CARES Act, individuals who do not itemize on their income taxes, can still get an extra deduction of up to $300 for donations made this year to qualified organizations.

Additionally, if you choose to make cash donations in 2020, you may deduct them up to 100% of your adjusted gross income.  This is up from 60% of AGI in previous tax years.  Any charitable contributions made in excess of this, can provide future deductions to be carried forward for five years, subject to the standard limitations.


Qualified Charitable Distributions from your IRA

Many of you previously used your Required Minimum Distributions (RMDs) to fulfill your charitable plans, thus avoiding ordinary income taxes on the withdrawal.  This year even though RMDs were waived, you can still distribute up to $100,000 from your IRA to qualified charities.  You will not receive a tax deduction, but you will reduce the balance in your IRA and this will lead to a lower required distribution next year.


In a year filled with so much uncertainty, we know that many of you are looking for reasons for hope and joy this holiday season.  Year-end financial planning may not always top your holiday list, but this year’s unique opportunities are worth reviewing, and maybe the savings opportunities will help start the holiday season with a smile.