• Home
  • /
  • Blog
  • /
  • 2020 Year-end tax planning

As we wrap up 2020, year-end tax planning has never been more crucial.

This year brought challenges and disruptions that significantly impacted your personal and financial situations – COVID-19/ a global pandemic, economic relief measures, new tax laws, a presidential transition, low interest rates, high gift and estate tax exclusions, historically low-income tax rates, and volatile financial markets.

Now is the time to take a closer look at your current tax strategies to make sure they are still meeting your needs and take any last-minute steps that could save you money.

Here’s a look at some issues to consider as we approach year-end.

Key tax considerations related to COVID-19

Many tax provisions were implemented under the Coronavirus Aid, Relief and Economic Security (CARES) Act aimed to help individuals and businesses deal with the COVID-19 pandemic and its ongoing economic disruption.

Economic impact payments

Eligible individuals received a payment of $1,200 ($2,400 for joint filers) plus $500 for each qualifying child, with payments phased out based on adjusted gross income.

The payments are treated as advance refunds of a 2020 tax credit.

If you received an economic impact payment, you should have received IRS Notice 1444, Your Economic Impact Payment. Keep this for record-keeping purposes.

Charitable deduction year-end planning

Unique to 2020, individuals who do not itemize their deductions can take an above-the-line charitable deduction of up to $300.

Such contributions must be made in cash and made to qualified organizations.

If you itemize deductions on your federal income tax return, you can generally deduct charitable contributions.

However, keep in mind that the amount of your deduction may be limited to certain percentages of your adjusted gross income.

For example, your deduction for gifts of cash to public charities is generally limited to 60% of your AGI for the year, and other gifts to charity are typically limited to 30% or 20% of your adjusted gross income.

Charitable deductions that exceed the adjusted gross income limits may generally be carried over and deducted over the next five years, subject to the income percentage limits in those years

For 2020 charitable gifts, the normal rules have been enhanced:

  • The limit is increased to 100% of adjusted gross income for direct cash gifts to public charities.
  • And even if you don't itemize deductions, you can receive a $300 charitable deduction for direct cash gifts to public charities, in addition to the standard deduction.

Make sure to retain proper substantiation of your charitable contribution.

In order to claim a charitable deduction for any contribution of cash, a check, or other monetary gift, you must maintain a record of such contributions through a bank record (such as a cancelled check, a bank or credit union statement, or a credit card statement) or a written communication (such as a receipt or letter) from the charity showing the name of the charity, the date of the contribution, and the amount of the contribution.

If you claim a charitable deduction for any contribution of $250 or more, you must substantiate the contribution with a contemporaneous written acknowledgment of the contribution from the charity.

If you make any noncash contributions, there are additional requirements.

Retirement account year-end planning

You can take up to $100,000 in coronavirus-related distributions from retirement plans through the end of the year without being subject to the 10% additional tax for early distributions.

Additionally, required minimum distributions are temporarily suspended for 2020.

If your retirement assets have taken a hit, not having to take a required minimum distribution may allow those assets to recover some value before you liquidate them.

2020 Year-End Tax Planning

State tax obligation related to teleworking arrangements for employees

As the COVID-19 outbreak continues, many employers are encouraging or requiring their employees to work from home (i.e., telework). Such remote working arrangements could potentially have tax implications that should be considered.

Pandemic telework state tax issues

Determining the jurisdiction where an employee owes state and local taxes has become complicated as work arrangements have changed drastically during the pandemic. In addition to owing income taxes in an employee’s state of residency, without specific relief, the employee may also owe income taxes in any jurisdiction where they may have worked.

The employee and employer may need to track all of the employee’s working locations. While some states issued guidance on withholding during the pandemic, that guidance has not been uniform or widely adopted. Additionally, whether a state has a reciprocity agreement may further affect withholding.

The Missouri Department of Revenue has stated, at the Missouri Bar Taxation Committee annual meeting, that “Withholding obligations are determined by the state where the employee performs services for the employer in exchange for wages. This is the case whether the employee is performing services at the employer’s work location or from the employee’s home.”

Regardless of reciprocity or pandemic guidance, employees may still have a state and local tax obligation, even if employers are not required to withhold.

Fraudulent activity remains a significant threat

Our firm takes security seriously and we think you should as well. Fraudsters continue to refine their techniques and tax identity theft remains a significant concern. Beware if you:

  • Receive a notice or letter from the Internal Revenue Service (IRS) regarding a tax return, tax bill or income that doesn’t apply to you
  • Get an unsolicited email or another form of communication asking for your bank account number or other financial details or personal information
  • Receive a robocall insisting you must call back and settle your tax bill
Make sure you’re taking steps to keep your personal financial information safe.

The Affordable Care Act (ACA) and year-end planning

The U.S. Supreme Court is expected to rule on the constitutionality of the ACA in 2021.

Though many questions remain, the penalty that the ACA imposes on individuals who do not have health insurance was repealed. However, other aspects of the ACA are still in place.

Contact your health insurance agent if you have questions about how this affects you.

Importance of retirement planning

We recommend you review your retirement situation at least annually.

That includes making the most of tax-advantaged retirement saving options, such as traditional IRAs, Roth IRAs and company retirement plans.

It’s also advisable to take advantage of health savings accounts that can help you reduce your taxes and save for your future.

Contact your financial advisor to determine whether you’re on target to reach your retirement goals.

Virtual currency/cryptocurrency

Virtual currency transactions are becoming more common. There are many different types of virtual currencies, such as Bitcoin, Ethereum and Ripple.

The sale or exchange of virtual currencies, the use of such currencies to pay for goods or services or holding such currencies as an investment generally has tax consequences.

Contact your tax advisor for help in understanding those consequences.

2020 year-end planning checklist

The following checklist will help you to identify important action items to consider as part of your 2020 year-end income and transfer tax planning as well as planning for the future in 2021.

For a more in-depth review of planning ideas, see Lyle Benson’s article from the Estate Planning Review

Income tax planning

  1. Harvest capital losses to offset realized gains and rebalance your taxable investment accounts
  2. Consider harvesting any capital gains that can be realized in the 0% tax bracket (available to lower income filers)
  3. Review charitable contributions to maximize income tax deductions.
  4. Consider that under the CARES Act Individuals have unique opportunities in 2020
  5. Consider donating appreciated assets that have been held for more than one year, rather than cash
  6. Plan for the unique change for IRA and 401(k) required minimum distributions in 2020
  7. Weigh the benefits of converting your traditional IRA to a Roth IRA to lock in lower tax rates on some of your pre-tax retirement accounts
  8. Maximize your contributions to a retirement plan, SEP IRA (if you are self-employed) and health savings account
  9. Review the timing of income and deductions
  10. Review quarterly estimated tax payments and assess any liquidity needs

Estate/Gift tax planning

  1. Make use of annual exclusion gifts ($15,000 per donee, $30,000 married couple) to help save on potential future estate taxes
  2. Capitalize on the unlimited gift exemption for direct payment of tuition and medical expenses
  3. Consider gifting to a 529 plan by year-end if saving for a child’s or grandchild’s education
  4. Review beneficiary designations and update, as necessary
  5. Have you updated your estate documents in the last three years? Do you need a revocable trust?
  6. Do you, and your adult children, have powers of attorney and advance directives?

Retirement, investments and other planning

  1. Speak to you advisors about any major changes in your life such as marriages or divorces, births or deaths in the family, job or employment changes, and significant planned expenditures (real estate purchases, college tuition payments, etc.).
  2. Review your various insurance policies and confirm whether the amount of coverage is still adequate
  3. Did you start or acquire a new business in 2020?
  4. Are you caring for an adult loved one with health or functional needs? Are their personal finances in order?
  5. Update pre-tax and Roth contributions to retirement accounts for 2021
  6. Confirm that you have spent the entire balance in your flexible spending accounts and set 2021 contribution amounts
  7. Review your investment portfolio and target asset allocation. Confirm whether you are within the targeted ranges for each asset class.
  8. Evaluate progress towards long-term financial goals

The decisions you make each year with your personal finances will have a compounding and lasting impact.

Year-end planning equals fewer surprises

There are many other opportunities to discuss as year-end approaches.

And, many times, there may be strategies such as deferral of income, prepayment of expenses, etc., that can help you save taxes.

As always, planning ahead can help you minimize your tax bill and position you for greater success.

Estate Planning for Missouri Families

Business Planning for Start-ups and Entrepreneurs

I will listen to you, answer your questions, explain all your options, and help you make the best decision

Click BOOK NOW to schedule your no-charge phone call and get your questions answered


You want a plan to make sure your loved ones are taken care of and your affairs are in order but...

you don’t know what is best for your family,

where to start,

or maybe even the right questions to ask,

and how much it will cost.

Which probably makes you feel confused, overwhelmed and maybe even a little powerless.

I look forward to working with you so that you can stop worrying about leaving your loved ones unprepared for one of the most emotional and stressful times in life.

Subscribe for Email Updates