Wealth Strategy: Year-End Planning Tips
As we enter the final month of 2020, now may be a good time to evaluate your present financial circumstance and the need for any transactions that need to be made prior to December 31, 2020 in order to qualify for your 2020 tax liabilities.
- 4th Quarter Estimated Tax Payments – For those who make quarterly estimates, review capital gains, income, dividends, and interest to determine if a 4th quarter estimated payment is necessary.
- Check Your Tax Withholding – In order to be penalty-proof for your 2020 federal income taxes, you must have paid at least 90% of the tax due for this year or have already paid 100% of the taxes due the previous year.
- Manage Income Tax Brackets - Accelerating deductions such as medical expenses or charitable donations may allow you to itemize instead of using the standardized deduction.
- Maximize Retirement Plan Savings - 401(k), 403(b) and Thrift Savings Plan contributions are $19,500 for 2020, along with the ability to add an additional $6,500 in catch-up contributions for those 50 and older. If you are considering converting existing accounts to a Roth IRA - tax rates will likely increase in the future. Therefore, it may be beneficial to pay taxes on IRA balances at low rates now on the amount converted to avoid paying taxes at higher rates in the future. Further, Roth IRAs are not subject to required minimum distribution rules.
- Tax Loss Harvesting – Review managed and non-managed taxable accounts to harvest losses where appropriate. With the potential capital gain rate increase to 39.6% (Biden plan) accelerating a portion of capital gains this year for those with income greater than $1 million may have potential benefits if there is a change.
- Closely Held/Small Business Owners – consider establishing a retirement plan that provides you with flexibility in the amount you can save, thereby reducing and saving income taxes. Examples might include; Cash Balance Pension Plans, SEP IRA, Simple IRA.
Wealth Transfer and Legacy Planning
- Gift your Annual Exemption – You can gift $15,000 per person or $30,000 per married couple (cash or securities). Should you gift appreciated securities, keep in mind that the benefactor of your generosity retains your cost basis. Consider gifting into an irrevocable life insurance trust or family trust to reduce the value of your potential taxable estate.
- Contribute to or fund a 529 College Savings Plan – While saving for college will not reduce your Federal tax liability, more than 30 states provide a state tax deduction for all or a portion of your contribution.
- Donate to Charity – If you are charitably inclined, there are several strategies to consider.
- Donate Appreciated Stock – donating appreciated stocks will benefit you by removing the resulting capital gains taxes associated with the sale of the stock
- Establish a Donor Advised Fund (DAF) with appreciated assets - DAF’s are a co-mingled charitable trust that allows you to make contributions of appreciated assets (stocks, real estate, art, etc.).
- Donate Cash to Charity – The CARES Act which was passed earlier this year provides a one-time $300 “above the line” deduction for cash contributions.
- Qualified Charitable Distributions (QCD) from your IRA – While the CARES Act waived the required minimum distribution for this year (RMD), you can still make a gift to charity from your IRA without paying income taxes.
- Update estate planning documents - wills, trusts, durable power of attorney and health care directive to make sure they are current.
- Flexible Spending Accounts – review the balance of your FSA plan.
- Health Savings Accounts – if you have a high deductible health insurance plan consider setting up an HSA.
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Calamos Wealth Management LLC), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Calamos Wealth Management LLC. Calamos Wealth Management and its representatives do not provide accounting, tax or legal advice. Each individual’s tax and financial situation is unique. You should consult your tax and/or legal advisor for advice and information concerning your particular situation. Nothing in this material should be relied upon in isolation for the purpose of making an investment decision. For more information about federal and state taxes, please consult the Internal Revenue Service and the appropriate state-level departments of revenue, respectively.
Please remember to contact Calamos Wealth Management LLC, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. Calamos Wealth Management LLC is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the Calamos Wealth Management LLC’s current written disclosure statement discussing our advisory services and fees continues to remain available upon request.
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