Trick or Treat! Give me Some Good Year End Financial Planning Strategies!
Although 2020 has been a year of unexpected changes, it is important to stay consistent. The fourth quarter is a great time to consider year-end strategies that may benefit you and check some things off your financial wellness list. To help you get started, here is a checklist of key topics, including new tax and retirement considerations related to the COVID-19 pandemic.
- Leverage low interest rates
- Refinance your mortgage - free up cash flow! Shorten length of loan! Save on interest!
- Refinance your student loans - yes, you read that right!
- Consider setting up a line of credit to use in case of emergency.
- Create or Update Estate Plan
- Is your estate plan up to date? An update is warranted every 3-5 years or when there are any major life changes.
- Have you shared essential documents with the people you have asked to help with your estate?
- Are your trusts funded?
- Are your beneficiary designations up-to-date?
- If you have minor children, have you designated a guardian?
- Gifting Strategies
- Give to Loved Ones: Take advantage of the federal annual gift tax exclusion and gift up to $15,000 per person – this is an income tax free event to the recipient and no IRS reporting required.
- Give to those in need – Charity: Everyone is entitled to a charitable deduction this year. Typically, there is no tax benefit for giving to charity unless you itemize deductions. However, the CARES Act created an above-the-line deduction of up to $300 for cash contributions from taxpayers who don’t itemize. If you would like to take advantage of this provision, make sure to donate before the end of the year.
- Understand the Impact of your Stimulus Check
- The CARES Act directed the IRS to issue stimulus checks of up to $1,200 per taxpayer and $500 per qualified child dependent. The payments were paid based on 2018 or 2019 return information, but are actually structured as advances of 2020 tax credits. The credits phase out for higher income taxpayers, so you need to understand that the check you received based on 2018 or 2019 won’t match the amount of credit you will calculate on the 2020 return. If the 2020 credit calculation is less than you received, there is no clawback, i.e. you won’t be required to give any money back. If you received less than the credit calculated for 2020, you can claim it as an additional refund.
- Spend your Flexible Spending Account (FSA) dollars.
- The IRS has relaxed certain “use or lose” rules this year because of the pandemic. Employers can modify plans through the end of this year to allow employees to “spend down” unused FSA funds on any health care expense in 2020 and let you carry over $550 to the 2021 plan year. Any unused dollars over $550 will be forfeited at year-end.
Wrap Up 2020 & Set Yourself Up for Success in the Upcoming Year
I’ll admit, this is a comprehensive list but if you find one or two things that stand out for you, try to get those done. Don’t forget I am here and ready to help. As you prepare to say adieu to 2020, don’t hesitate to reach out to talk through any topics or new priorities that need addressing.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.