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Still Time for 2020 Tax Planning


2020 is coming to an end (thank goodness!). That means it is time to do some year-end planning to defer or minimize your 2020 tax liability. As always, check with your personal accountant or financial planner prior to making any decisions.


The Vincentian Circle, MSV’s planned giving society shares the following items:

1. Defer your income

It's tough for employees to postpone wage and salary income, but you may be able to defer a year-end bonus into next year—as long as it is standard practice in your company to pay year-end bonuses the following year.


If you are self-employed or do freelance or consulting work, you have more leeway. Delaying billings until late December, for example, can ensure that you won't receive payment until the next year.


Whether you are employed or self-employed, you can also defer income by taking capital gains in 2021 instead of in 2020.


2. Take some last-minute tax deductions

Just as you may want to defer income into next year, you may want to lower your tax bill by accelerating deductions this year. For example, contributing to charity is a great way to get a deduction. And you control the timing.

  • You can supercharge the tax benefits of your generosity by donating appreciated stock or property rather than cash. To donate to Marillac St Vincent click HERE.

  • Better yet, as long as you've owned the asset for more than one year, you get a double tax benefit from the donation: You can deduct the property’s market value on the date of the gift and you avoid paying capital gains tax on the built-up appreciation.

3. Beware of the Alternative Minimum Tax

Sometimes accelerating tax deductions can cost you money, if you're already in the alternative minimum tax (AMT) or if you inadvertently trigger it. Originally designed to make sure wealthy people could not use legal deductions to drive down their tax bill, the AMT is now increasingly affecting the middle class. The AMT is figured separately from your regular tax liability and with different rules. You have to pay whichever tax bill is higher.


4. Sell loser investments to offset gains

A key year-end strategy is called “loss harvesting”—selling investments such as stocks and mutual funds to realize losses. You can then use those losses to offset any taxable gains you have realized during the year. Losses offset gains dollar for dollar.


5. Contribute the maximum to retirement accounts

There may be no better investment than tax-deferred retirement accounts. They can grow to a substantial sum because they compound over time free of taxes. Company-sponsored 401(k) plans may be the best deal because employers often match contributions.


6. Avoid the kiddie tax

Congress created the "kiddie tax" rules to prevent families from shifting the tax bill on investment income from Mom and Dad's high tax bracket to junior's low bracket.


7. Check IRA distributions

You must start making regular minimum distributions from your traditional IRA by the April 1 following the year in which you reach age 72 (70 1/2 if you reached 70 1/2 prior to January 1, 2020). However, minimum distribution requirements have been suspended for 2020. Failing to take out enough triggers one of the most draconian of all IRS penalties:


8. Watch your flexible spending accounts

Flexible spending accounts, also called flex plans, are fringe benefits which many companies offer that let employees steer part of their pay into a special account which can then be tapped to pay child care or medical bills.


If you have questions about including Marillac St Vincent in your will or estate plan visit www.msvplannedgiving.org or contact Dan Summins at dan@marillacstvicnent.org or (312) 278 – 4220.

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