Tax Planning

Don’t Let Year-End Tax Planning Get You Down!

So maybe taxes aren’t exactly at the top of your list. But remember, don’t implement these strategies solely for tax purposes – year-end tax planning is part of holistic financial planning. Furthermore, with the Georgia Senate run-offs not taking place until 2021, let’s utilize what we know for certain NOW to forecast your 2020 tax bill.

This is broken out into two sections: the first is for Individuals and the second is for Business Owners.  Please consult with your tax preparer when implementing tax advice.


Bunch expenses so that you can itemize – potentially do it every other or every few years.

  • Items to consider “bunching” so that you exceed the $24.8K standard deduction: charitable contributions (or a donor-advised fund), non-emergency medical bills to get over the 2020 threshold of 7.5% of AGI, property taxes (pay 2 years’ worth in the same calendar year; the $10K SALT cap still applies).


Accelerate income.

  • Do you have less taxable income this year?  Maybe it’s time to consider a Roth IRA conversion.
  • This is a taxable event, but it will get your investment into a vehicle that will grow tax-free.
  • While the conversion itself is cash-flow neutral, you will owe tax on the conversion amount.  I advise clients to not withdraw money from their retirement accounts to pay the tax due.
  • Does anyone think taxes will be going down in our lifetime?


Maximize retirement contributions.

  • Remember, to contribute to an IRA, you must have earned income. Even if it’s non-deductible, it still grows tax-deferred. Please consider your tax allocation* if pursuing this as there may be more advantageous options for the $6K.
    • *Tax allocation is the percentage of your investable asset base in three buckets: taxable, tax-deferred, and tax-free.
  • Don’t forget about the ability of a non-working spouse to execute the spousal IRA strategy, which allows him or her to contribute to an IRA with no income.
  • I consider a Health Savings Account a retirement account.  This is NOT the one that has a use-it-or-lose-it feature.


Have mutual funds in your taxable account?

  • Don’t forget about assessing your tax-loss harvesting opportunities.
  • You can deduct up to $3K in capital losses if married filing joint.
  • Don’t trigger the wash sale rules to prevent you from writing off the loss.


Safe harbor – avoid an underpayment penalty for underpaying estimated taxes.

  • If your AGI was over $150K last year, withhold 110% of the prior year’s tax liability.
  • This is best to do via the withholding on your paycheck. If this isn’t possible, then quarterly payments are required to be made evenly throughout the year.


Assess the cost of your charitable donations.

  • Don’t make a donation just to reduce tax liability – think about the money it costs you to get the tax deduction.
  • You might be better off gifting certain assets to kids/family members depending upon your intent.


Do you have ISOs (incentive stock options?)

  • Check with your CPA before exercising, as ISOs are considered a tax preference item.
  • Although fewer people are subject to AMT, it could be worth looking into before exercising.


Accelerate Gifting With 529s.

  • Remember, you don’t have to file a gift tax return for gifts under $15K.
  • 529s are the only vehicle that allows you to gift 5 years’ worth of contributions in 1 year and avoid the federal gift tax, as long as you don’t gift anything else to the same beneficiary over that 5 year period.


Business Owners


Depreciating vs. Writing Off: Code Section 179 is for assets bought and placed into service during the year.

  • Don’t depreciate. Write off upfront to reduce tax liability in the current year (i.e., bigger expense, less income)
  • Examples: technology, office furniture, large vehicle (i.e., Ford Expedition or something similar)
  • You can’t use it to create a loss, but you can carry excess losses forward.


Do you have a family-owned business? Put the kids to work!

  • Pay them $18.4K ($12.4K is the standard deduction + $6K to contribute to an IRA).
  • Take this to the next step – “ask” them to gift the $12.4K back to you and use that to contribute to a 529 for them, and you get the 529 deduction if your state allows.
  • Be sure to give them age-appropriate jobs.
  • You’re no longer allowed an exemption for the child, but if you provide at least 50% of their support, you may qualify for other tax credits.


Do you have your own business and no W-2 employees?  Or is your only other employee your spouse?  Here are the retirement plan options to consider:

  • Implement a Solo 401k to max out contributions up to $57K ($19.5K as the employee, $37.5K as the employer). I recommend pursuing the Roth option for the employee portion.
  • You can max this out if you make at least $150K.
  • This may be better than a SEP IRA because if you want to max the SEP out you must make $228K if you’re a W-2 employee (threshold is 25%) or $285K if an unincorporated, sole proprietor (threshold is 20%).
  • If you’re an S-Corp and make over $150K, distribute the amount over that threshold as a dividend distribution not subject to payroll tax.


Executing a 1031 exchange for commercial/business property/rented vacation property.

  • You must spend the same or more on the new property than what you’re taking in from the sale.
  • The new property must be used for a similar use.
  • In the case of vacation property that you want to make permanent, rent it out for a year. Then make it your primary residence.
  • Plan on keeping in it your estate so that beneficiaries receive the step-up in basis.


The CARES Act reinstated the Net Operating Loss Carryback.

  • Losses incurred before and during the pandemic can be used to offset 5 years of past profits.
  • This presents an opportunity for tax rate arbitrage as the old tax rate was 35% before the passage of the TCJA, which lowered the tax rate to 21%.


Have questions?  We’re happy to continue the conversation.  Feel free to schedule a call here.