By Krista McBeath, McBeath Financial Group
The Chinese refer to 2020 as the year of the rat. I’ve heard many here in the U.S. refer to 2020 as the year of the dumpster fire. Personally, I try to make the best of any situation, and I recommend the same for my clients. That includes looking for year-end moves to make the best of the year.
Certainly, it was a year of changes for many. If notable changes occurred in your personal or professional life, then you may want to review your finances before this year ends and 2021 begins. Did you start a new job or leave a job behind? Did you retire? Did your family grow? Did you move? Even if your 2020 has been relatively uneventful, the end of the year is still a good time to get cracking and see where you can manage your overall personal finances.
Keep in mind this article is for informational purposes only and is not a replacement for real-life advice. Please consult your tax, legal, and accounting professionals before modifying your tax strategy.
Do you engage in tax-loss harvesting? That’s the practice of taking capital losses (selling securities worth less than what you first paid for them) to manage capital gains. You might want to consider this move, but it should be made with the guidance of a financial professional you trust.1
In fact, you could even take it a step further. Consider that up to $3,000 of capital losses in excess of capital gains can be deducted from ordinary income, and any remaining capital losses above that amount can be carried forward to offset capital gains in upcoming years.1
Do you want to itemize deductions? You may just want to take the standard deduction for the 2020 tax year, which has risen to $12,400 for single filers and $24,800 for joint. If you do think it might be better for you to itemize, now would be a good time to get the receipts and assorted paperwork together.2,3
Could you ramp up your retirement plan contributions? Contribution to these retirement plans may lower your yearly gross income. If you lower your gross income enough, you might be able to qualify for other tax credits or breaks available to those under certain income limits.4
Are you thinking of gifting? How about donating to a qualified charity or non-profit organization before 2020 ends? Your gift may qualify as a tax deduction. For some gifts, you may be required to itemize deductions using Schedule A.4
While we’re on the topic of year-end moves, why not take a moment to review a portion of your estate strategy. Specifically, take a look at your beneficiary designations. If you haven’t reviewed them for some time, double-check to see that these assets are structured to go where you want them to go, should you pass away. Lastly, look at your will to see that it remains valid and up-to-date.
Check on the amount you have withheld. If you discover that you have withheld too little on your W-4 form so far, you may need to adjust your withholding before the year ends.
What can you do before ringing in the New Year? New Year’s Eve may put you in a dancing move, eager to say goodbye to the old year and welcome 2021. Before you begin 2021, consider speaking with a financial or tax professional. Don’t wait for the Year of the Ox to begin in February! Little year-end moves might help you improve your short-term and long-term financial situation.
Krista McBeath is an Investment Advisor, Chartered Financial Consultant, a Licensed Insurance Advisor, a Fiduciary, and an experienced tax advisor who specializes in financial planning, investments, and insurance. Phone 309-808-2224 or email firstname.lastname@example.org for appointment information.
Advisory services are offered through McBeath Financial Group. Insurance products and services are offered through McBeath Tax and Financial Services, LLC. McBeath Financial Group and McBeath Tax and Financial Services, LLC. are affiliated.
Citations: 1. Investopedia.com, April 18, 2020, 2. NerdWallet.com, July 17, 2020, 3. Investopedia.com, May 22, 2020, 4. Investopedia.com, July 14, 2020