Financial Planning Tips to Act on Before Year-End

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