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1. Excellent Opportunity for the Charitably Inclined
Deadline: December 31, 2020 For taxpayers thinking about making a large charitable contribution, 2020 offers an excellent opportunity. Unlike other years where charitable gifts are limited, charitable donations made in 2020 to qualifying organizations are 100% deductible. 2. Pay Home Business Expenses Now to Lower Taxable Income Deadline: December 31, 2020 “If you have a home business, now may be the right time to squeeze in any large business expenses you have been considering. By paying for qualified business expenses before the calendar flips to 2021, you will lower your overall 2020 taxable income.” - Brooke Salvini, CPA/PFS member of the AICPA PFP Executive Committee 3. Self-Employed? Establish a Retirement Plan & Get Tax Benefits Today Deadline: December 31, 2020 setup for certain plans, return due date for others Self-employed? It is never too late or too soon to set up a retirement plan. Some plans must be established before December 31, but you can postpone funding until 2021 and still claim the tax benefit on your 2020 tax return. 4. Make Up Estimated Tax Shortfall with Increased Withholding Deadline: Final 2020 company payroll submission by human resources (varies by company) “If you find that your estimated tax payments throughout the year are coming up short of what you expect to pay for 2020 taxes, you are in danger of incurring penalties. Reach out to your human resources department to request an increase to the withholdings from your remaining 2020 paychecks to make up the difference ASAP. After you catch up, you can complete and submit a new Form W-4 to make your withholding more accurate so it is even throughout the year.” - Paula McMillan, CPA/PFS member of the AICPA PFS Credential Committee 5. Pandemic Loan Opportunity Coming to an End Deadline: December 31, 2020 Distributions made prior to December 31, 2020 from qualified plans provide a once-in-a-lifetime chance to borrow up to $100,000 penalty, tax, and interest-free from your 401(k)/IRA over three years. This potential liquidity lifeline should be used very cautiously to avoid setting back your retirement savings for years. But for small business owners affected by COVID costs/loss of revenue, it could be a valuable option. 6. Maximize Health Savings Account (HSA) Contributions Deadline: April 15, 2021 If you have an HSA qualified health insurance plan, one way to lower your taxes is to contribute the maximum allowed in your HSA. HSA contributions can be deducted through payroll, but you can also make contributions directly to ensure the maximum is made. In addition to providing a tax deduction, HSA dollars carry over indefinitely and are yours even if you switch jobs or retire. 7. Leverage Your Losses to Protect Your Income from Taxes Deadline: December 31, 2020 Now is a great time to review your investment portfolio to realize any additional capital gains and losses for the year. If you find yourself with net realized capital losses for the year, it is important to know that you can only reduce your ordinary income by $3,000. The remaining capital loss would then be carried forward into the next year. Remember to coordinate your capital gain/loss harvesting strategy with your tax planning. 8. Don’t Miss Employer 401(k) Match Opportunities Deadline: Deferred from last paycheck or December 31, 2020 Everyone with an employer that offers a 401(k) match should at least contribute the amount required to get the maximum match. If you aren't contributing enough to receive the full employer match, you should check on whether there may be a ‘catch up’ opportunity before year-end. 9. Maximize Roth Contribution Opportunities Deadline: April 15, 2021 It might make sense to increase your contributions in order to take full advantage of this year’s opportunity to put away retirement savings dollars into your Roth IRA. You pay taxes at the time of contribution to a Roth IRA and then the Roth contribution remains in the account growing tax-free. 10. Review Beneficiary Designations Deadline: Make it routine. It is a good habit to annual review your beneficiary designations in case there are any changes year after year. 11. Gift Today to Reduce Future Estate Tax Deadline: December 31, 2020 Don’t forget that you can give up to $15,000 to as many beneficences as you would like each year without paying a gift tax or decreasing your lifetime estate tax exclusion amount. 12. Revisit Risk Tolerance and Portfolio Diversification Deadline: Make it routine. As the impact of COVID-19 continues to play out across the country, investors should weigh their risk tolerance and ensure they have ample cash on hand. Further, a tax-efficient financial plan that includes a diversified portfolio can give confidence that long-term financial goals will remain within reach through this period of extreme uncertainty. Please contact Brien Smith, [email protected] or 979-694-9100 for questions on any of the above financial planning tips. Source: Wealthmanagement.com staff. 20 November 2020. https://www.wealthmanagement.com/retirement-planning/fourteen-financial-planning-tips-act-year-end/gallery?slide=2
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 Meet our newest Aggie intern, Sarah Mahoney. Sarah is class of 2021 and will graduate with a degree in Applied Mathematical Sciences-Actuarial Science and minors in Economics and Statistics. She grew up in College Station and has Aggie family members. Sarah never considered attending college anywhere else! Sarah would like her future career to focus on quantitative research in the financial sector.
Sarah is looking forward to her annual Christmas cookie exchange this holiday season. It’s always a fun surprise to see what everyone has made. Her favorite Christmas carol is Sleigh Ride and her favorite Christmas movie is How the Grinch Stole Christmas. We are excited to welcome Sarah Mahoney to the TWA team! She brings a wealth of knowledge, hard work, and experience that will benefit the clients and employees at TWA. Philanthropy and giving is on most of our minds as we wrap up the pandemic year of 2020. Nonprofits need help now just to keep their doors open. New tax laws and strategies can help you maximize tax breaks for yourself and have benefits for the charity. Here's what you need to know:
The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, created several incentives for people to help charities right away, including a charitable deduction of up to $300 in 2020, even if you don't itemize. Otherwise, you generally need to itemize to take the charitable deduction. The CARES Act also helps people who are in a financial position to make very large gifts. In 2020, you can deduct cash gifts of up to 100% of your adjusted gross income, rather than the usual 60% limit. To qualify for this higher limit, the gifts must go directly to the charities, rather than to a donor-advised fund or private foundation. This can help wealthy people reduce their taxable income significantly in 2020, and it may also help retirees who have money to give but bump up against the income limits for the deduction. Bunch Contributions and Donor-Advised Funds Rather than making a steady stream of charitable contributions from year to year, it may be better to use a bunching strategy – give more and itemize in one year, and claim the standard deduction in other years. Even though this can help you tax-wise, you might not want to give all of the money to the charities at one time and then neglect them over the next few years. But bunching can work well if you have a donor-advised fund. These funds are offered by brokerage firms, banks and community foundations, and you can take the charitable deduction in the year you give the money to the donor-advised fund, but then you have an unlimited amount of time to decide which charities to support. Another benefit of the donor-advised fund is simplicity – you get one receipt for your tax records when you make the contribution and don't have to wait for a variety of paperwork from each of the charities. Give Appreciated Stock Many people just write a check to the charity, but you may get a larger tax benefit if you give appreciated stock. If you owned the stock for more than a year, you can deduct the value of the stock on the date you give it to the charity if you itemize. And even if you don't itemize, you can avoid having to pay long-term capital gains taxes on your profits, which could have cost up to 20% if you sold the stock first. With so much stock market volatility this year, you may want to donate the stock when it reaches a target price, rather than giving at a certain time of year. Tax-free IRA Transfer People who are age 70½ and older can give up to $100,000 per year tax-free from their IRA to charity, a procedure called a qualified charitable distribution or QCD. The gift counts as their required minimum distribution but isn't included in their adjusted gross income. Research Your Charities Scam artists have been out in full force to take advantage of the coronavirus pandemic. It's even more important now to check out charities before you give money, especially if they contact you first. You can look up charities at sites such as Charity Navigator and the Better Business Bureau's Wise Giving Alliance. With so many options for giving, be sure to check with your financial advisor, Brien Smith, at [email protected] or 979-694-9100, before finalizing your gift. Source: Lankford, Kimberly. 21 August 2020. US News. https://money.usnews.com/money/personal-finance/taxes/articles/new-rules-for-charitable-giving   One of the greatest joys this holiday season can be gifting to loved ones or charities. Before gifting, there are some important things to consider to get the most out of your gift. Consider these questions before finalizing your gift:
How does gifting fit into my overall financial picture and financial health? Does it make sense to give up this money? Could it cause financial struggles or issues in the future? What can you give? According to the IRS Publication 526 Charitable Contributions, each person can give $15,000 to an individual. Which means a married couple could give $30,000 to each of their children or grandchildren. If you give a greater amount than the allotted annual giving, you will need to file a gift tax return. Click on the link above for more details and always check with a tax professional first. Capital Gains Tax of the Gift Receiver If you give cash, generally there are no income tax consequences for the recipient, though there could be gift and estate tax implications. If you give appreciated securities, the capital gains taxes can be significant. One example, say you give $15,000 cash to a grandchild. They get to keep the entire $15,000 and can choose how to use it. However, if your gift is $15,000 of a stock and the recipient sells the stock with a gain, after at least 1 year it becomes a taxable event. After the sale, the grandchild would owe a capital gains tax and possibly state taxes. Trusts & Custodial Accounts A trust is a legal document that can help expand your options when it comes to managing your assets—whether you’re trying to shield your wealth from taxes or pass it on to your children. Trusts are increasingly used by families from a range of economic backgrounds, not just the wealthy. Another positive aspect to a trust is that if set up correctly it can be protected from lawsuits, divorces, creditor claims, etc. Another option is a custodial account which allows you to make gifts to an account invested in the child’s name, and the assets in the account can be used for any expense for the benefit of the children. There are positives and negatives to trust and custodial accounts. Your financial advisor can help you decide which is the most appropriate for your situation. Give the Gift of Education A 529 savings account can be a great gift for a grandchild. A big plus with this type of account is that you and your spouse can front-load 5 years worth of your annual exclusion gifts. Together, you could give 5 times the combined total of $30,000 for 2019, or $150,000, to each of your children or grandchildren. In addition, the 2017 tax cuts expanded 529 plans beyond college to now include the ability to fund up to $10,000 in K–12 tuition per beneficiary per year. Definitely consider giving the gift of education to a loved one. Donor-Advised Fund A donor-advised fund (DAF) is a program of a public charity that allows donors to make contributions to the charity, become eligible to take an immediate tax deduction, and then make recommendations on distributing the funds to qualified charitable organizations. By making a large donation to the donor advised fund, you can claim a tax deduction in the year of the gift. However, the money does not need to be granted to a charity in the year you make the contribution. You can let the money grow and you can decide later how the money will be distributed. Contact Brien Smith, [email protected] or 979-694-9100 to help you get started building a holistic financial plan to reach your goals—which may also include strategies to make financial gifts to people and organizations that you care most about. Fidelity Viewpoints. 3 December 2020. https://www.fidelity.com/learning-center/personal-finance/charitable-giving/giving-money |
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