Believe it or not, it is November. Before Thanksgiving, take some time to answer your year-end financial questions.
Here are some strategies to minimize your 2020 tax liability and plan for 2021 from our friends at Coldstream Wealth Management, but you should consult your own financial and tax advisors.
- Make an estimate of 2020 and 2021 income and expenses. Push or pull income and expenses to provide greater benefit.
- Review and adjust income withholding to avoid under- or over-payment of tax in 2021.
- Don’t forget to spend down 2020 Flexible Spending Accounts (FSAs). Check deadlines for your specific plan.
- Maximize deductible contributions to retirement plans and Traditional IRA’s (unless Roth contributions are better for you). Remember that in 2020 no RMD is required due to the government’s COVID response.
- Due to the CARES Act, taxpayers may withdraw up to $100,000 from retirement plans and spread the tax over a 3-year period without the usual 10% penalty.
- Increased standard deduction allowances means itemizing may not be beneficial for some taxpayers who itemized in the past. Consider adjusting timing of deductible expenses to bunch itemized deductions in particular years.
- Examine annual gifting to opportunities.