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6 Financial Planning Tips to Close Out the Year of COVID

By Michael S. Fischer

Slideshow November 18, 2020 at 09:38 AM Share & Print

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(Find more year-end tax tips: 10 Tax Planning Steps to Take Before New Year’s Eve)

The window of opportunity to trim 2020 tax bills, save for retirement and leverage strategies to secure one’s financial future is closing. Some of these opportunities arise from temporary measures intended to help people cope with the pandemic that expire at the end of the year.

Related: Quiz: Do You Know These Investment Tax Facts?

To help Americans make these moves in a timely manner, the American Institute of CPAs on Tuesday offered tips from its cohort of CPA financial planners. We’ve focused here on those that seemed particularly salient or time-sensitive this year. Click through the gallery to see six financial planning tips for the end of 2020.

Register now for the free webinar “What Will Be the Biggest Tax Implications for 2021,” set for 2–3 P.M. EST, on Wednesday, Nov. 18.

— Related on ThinkAdvisor:

Michael S. Fischer

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6 Financial Planning Tips to Close Out the Year of COVID

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1. Take advantage of temporary charity deduction rules.

Deadline: Dec. 31

“For taxpayers thinking about making a large charitable contribution, 2020 offers an excellent opportunity to go all in,” says Maggie L.N. Rauh, personal financial specialist credential committee. Charitable donations made in 2020 to qualifying organizations are 100% deductible, not limited by a percentage of AGI as in past years.

(Photo: Shutterstock)

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2. Double-check your tax withholding.

Deadline: Final 2020 company payroll submission by human resources (varies by company)

“If you find that your estimated tax payments throughout the year are coming up short of what you expect to pay for 2020 taxes, you are in danger of incurring penalties,” says Paula McMillan, PFS credential committee. Working remotely from another state can also affect the amount of tax you should withhold. Ask the human resources department for an increase to the withholdings from your remaining 2020 paychecks to make up the difference as soon as possible. After that happens, complete and submit a new Form W-4 to make withholding even throughout the year.

(Photo: Shutterstock)

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3. Don't forget: Special 401(k) loan rules expire at year-end.

Deadline: Dec. 31

“For those impacted by the pandemic who need liquidity, there is a special opportunity expiring at the end of the year,” says Mark Alaimo, PFS credential committee. “Distributions made prior to Dec. 31, 2020, from qualified plans provide a once-in-a-lifetime chance to borrow up to $100,000 penalty, tax and interest free (you do lose the upside/downside on the investments) from your 401(k)/IRA over three years.”

(Photo: Shutterstock)

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9. Follow a tax loss harvesting rule of thumb. When it comes to tax loss harvesting, a “rule of thumb” to remember is to “sell enough losses to cover any capital gains realized in the current year plus $3,000,” according to Charron. This is because the losses “will offset gains” and up to $3,000 of ordinary income from wages. Also, $3,000 is the maximum amount of losses that can offset ordinary income in a given year, she notes. (Photo: Shutterstock)

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5. Review beneficiary designations.

Deadline: Make it routine.

“Due to the end of ‘stretch IRAs,’ check whether any designated beneficiaries are eligible to be exempt from the 10-year rule,” says Sidney Kess, PFP executive committee. Determine whether current designations align with original intent. Divorced clients should be sure to review all designations and make changes where necessary.

(Photo: Shutterstock)

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6. Revisit risk tolerance and portfolio diversification.

Deadline: Make it routine.

“Though the stock market’s record performance is encouraging, 2020 has served as a reminder of the volatile nature of markets,” says Dave Stolz, chair of the PFS credential committee. As the pandemic continues, investors should weigh their risk tolerance and ensure they have ample cash on hand. A tax-efficient financial plan that includes a diversified portfolio can give confidence that long-term financial goals will remain within reach.

(Photo: Shutterstock)

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