Individual Tax Planning

Tax Planning for Individuals


With the potential for an increase in income tax rates, individuals might want to consider accelerating income into 2020. Likewise defer deductions that can be used to offset future income that could be taxed at higher rates.

Tax Moves

Charitable Giving – Increase charitable donations if you itemize deductions for 2020. Under the CARES Act, you can deduct monetary gifts up to 100% of your adjusted gross income (AGI) in 2020 instead of the 60% of AGI level. Bunch charitable contributions into a year you itemize.

Harvest Capital Gains or Losses – Consider harvesting capital losses to offset capital gains, especially short-term gains realized earlier this year. Or harvest capital gains that will be absorbed by capital losses.

Do Not Take Your RMD for 2020 – The CARES Act waives the requirement to take a RMD in 2020. Unless you need the money, keep it where it is.

Home Equity Loans – If you use a home equity loan to substantially improve your personal residence or for a second home, you can deduct the interest subject to the overall $750,000 debt limit.

Medical Expense – You can deduct unreimbursed medical expenses above 7.5% of adjusted gross income (AGI) for 2020. The limitation is currently set to change to 10% of AGI for 2021. If you have a shot at a distribution this year, schedule elective visits for procedures, dentist, physicals, and eye doctor visit before year end.

Tuition – You can pay tuition due for courses that begin in January through March, 2021 in December, 2020 to increase your 2020 tax saving if you qualify for the American Opportunity Tax Credit (AOTC), the lifetime learning tax credit (LLC) or a tuition deduction,

Penalty Free IRA Funds – Under the CARES Act you can withdraw up to $100,000 from your IRA in 2020 without paying the penalty if the distribution is due to COVID-19. If you pay the funds back to your IRA within three years you can also avoid regular federal income tax.

Installment Sales – If you sell real estate or other capital assets and receive proceeds over two or more years you are taxed on a pro-rata basis on the amount you receive from the sale each year.

Gifting – You can gift up to $15,000 per recipient per year and pay no gift tax. Your spouse can also gift up to $15,000 to each recipient, even the same recipient you gave to, and not pay any gift tax.

529 Plan Withdrawals – You may have already withdrawn funds from a 529 Plan to pay for anticipated room and board or other qualified expenses but now the expenses will not be incurred due to COVID-19 refunds. These refunds of qualified expenses MUST be recontributed to the 529 Plan within 60 days to avoid being taxed on the amount of the 529 that is no longer needed and to avoid a tax penalty. If you are returning money to a 529 Plan, be sure it is characterized as a recontribution due to a refund of qualified expenses.

Retirement Plan Contributions – They represent one of the smartest tax moves you can make. Don’t forget to fund your retirement plans (IRA’s, SEP, Simples) to get the deduction in 2020. You don’t have to wait until the last day to make your deposit. Remember the earnings on your retirement account are not taxed and the sooner you put in your contributions for 2020 the more time this contribution has to grow tax free.

Economic Recovery Rebate Payments – Under the CARES Act many of you received direct economic recovery payments of $1,200 plus $500 more for each child under 17. Technically, the rebate is an advance payment of a special 2020 tax credit. We must reconcile your rebate on your 2020 tax return. If you received a rebate, please let us know.

Secure Act Changes – People with earned income can make contributions to Traditional IRA’s past the age of 70 1/2 starting in 2020. Anyone having a baby or adopting a child can now take payments from IRA’s and 401k’s up to $5,000 without having to pay the penalty for pre age 59 1/2 withdrawals.