Author: Rick Bryan 

End of Year Tax Planning – Important Financial Tasks Not to be Overlooked

Another year is coming to an end, and most of us will likely say good riddance to 2020. A pandemic, recession, and political uncertainty will make 2020 unforgettable for all the wrong reasons. That said, right now is the perfect time to begin wrapping up your end-of-the-year financial tasks.

End Of Year Tax Dates

As financial advisors, we suggest focusing on tackling these financial tasks before December 31^st:

Year End Tax Tip: Maxing Out Retirement Plan Contributions

If you don’t max out your retirement plan contributions, you might miss out on some employer contributions. Not only that, but you may be lowering the compounding investment growth of your retirement plan wealth. And, for the current calendar year, you will also be passing up another considerable benefit – obtaining a potential tax benefit. Time is running out for you to hit the statutory limit on employee deferrals for 401(k)/403(b)/457 plans—they must be deferred from 2020 paychecks on or before December 31^st. As a reminder, for 2020, if you are under the age of 50, your maximum retirement plan deferral contribution is $19,500 and $26,000 if you are age 50 and older.

Flexible and Health Savings Account Year End Tax Strategy

If you have a Flexible Spending Account (FSA), spend down any unused funds. You need to use these FSA funds by December 31^st on qualified out-of-pocket health-related expenses. Some FSA plans allow you to roll over a small amount of any unspent balance to the next calendar year, but the rollover amounts are typically small. Any unused FSA balances generally are forfeited back to your employer. The good news is that most plans let you submit spending receipts for a couple of months after December 31^st, but those receipts need to show the funds spent on or before December 31^st.

If you have a Health Savings Account (HSA), if you can, make sure that you have contributed the maximum amount for the 2020 limits. For individuals, the 2020 HSA contribution limits are $3,550 for those under the of 55 and $4,550 for those age 55 and older; for families, the contribution limits are $7,100, plus an extra $1,000 for those age 55 and over.

Roth Conversions – Another Year End Tax Move

Roth IRA accounts are a retirement account that allows you to pay tax in the onset. With Roth IRA’s, unlike tax-deferred IRA’s, future qualified withdrawals are tax-free, and balances within Roth IRA’s are exempt from annual Required Minimum Distributions during your lifetime.

Because of income limitations (state income limit), many people are prevented from contributing directly to a Roth IRA on an annual basis. Luckily, you have the option of converting existing tax-deferred IRA dollars to a Roth IRA. One very important consideration when deciding if and how much to move through the conversion process is that every dollar converted from a tax-deferred IRA is taxable income to you in the year of the conversion. The deadline for all Roth conversions is December 31^st for the conversion amount to be attributed to the 2020 calendar year. Always consult a tax professional prior to implementing a Roth Conversion.

Tax Loss Harvesting – A Last Minute Tax Deduction.

In taxable investment accounts, you might have the ability to offset capital gain income generated as a result of selling investments at a profit or through capital gain distributions. The process for offsetting these capital gains is often called tax-loss harvesting. To harvest losses, you identify and sell assets that have an unrealized loss. When you sell these assets at a loss, you can use these “harvested” losses to reduce your capital gains. Losses generated and not used in the current year to offset capital gains can be carried forward to future years to offset future capital gains; you can also use up to $3,000 each year in tax-loss harvesting losses to offset current year income. The deadline to trigger tax losses to use in the current year is December 31^st.

If you want to watch a video on tax loss harvesting, our Director of Portfolio Strategy Adam Phillips is interviewed on the subject here.

Charitable Contributions – End of Year Tax Deductions

December 31^st is the Treasury deadline to gain the current-year tax deduction on direct charitable contributions if you itemize or contributions to donor-advised funds at a custodian like Schwab or Fidelity. If you use a donor-advised fund, please remember that COVID has stretched staffing at custodians, so waiting until the week before the end of the year to make your donation might cause you to miss the year-end deadline. Not only will your contribution benefit a charity but it may help lower your taxes.

Have Questions About Your End of Year Tax Planning?

It’s more than a great time of year to hear how you’re doing. I’m here to help you with any questions you may have with your year end tax planning, which can include tax projections supported by our CPA on staff. Feel free to call or email with your questions.

Disclosures:

• The decision to open a retirement account and/or they type(s) can be a difficult one. There a numerous option and each option may present benefits and restrictions. 401(k)s, Traditional IRAs and Roth IRAs are not the only retirement account options available to investors. Many unique factors that are specific to the individual needs and goals of an investor should be considered prior to selecting a retirement account. Other options exist that may be better suited to your individual needs. 401(k)s and employer match options are not offered by all employers. Please consult your employer regarding their respective retirement plan options and benefits. Please consult a tax professional before implementing a retirement account.
• EP Wealth Advisors, (“EPWA”) offers services to a variety of accounts, including Traditional IRAs and Roth IRAs. However, EPWA cannot manage or service an individual participant’s account in a Participant Directed 401(k) plan. For this reason, EPWA and their staff may be incentivized to recommend a 401(k) to IRA rollover.
• There is no guarantee that a Roth IRA will be a suitable option for your retirement needs or that any of the referenced benefits will be achieved or sustained. Accordingly, your personal experience with any of the accounts mentioned in this post may be better or worse than what has been indicated here. or any account referenced herein. Please consult with a CPA, tax professional, and/or attorney regarding your specific situation before implementing any of the strategies referenced directly or indirectly herein.
• Information presented is general in nature and should not be viewed as a comprehensive analysis of the topics discussed. It is intended to serve as a tool containing general information that should assist you in the development of subsequent discussions. Content does not involve the rendering of personalized investment advice nor is it intended to supplement professional individualized advice.  
• Hiring a qualified advisor and/or financial planner does not guarantee investment success, and does not ensure that a client or prospective client will experience a higher level of performance or results. No guaranty or warranty is made that any direct or implied results or projections being represented here will be met or sustained.
• The need for a financial advisor or financial planner and/or the type of services required are specific to the uniqueness of each individual’s circumstances. There is no guarantee or warrantee that the services offered by EP Wealth Advisors, LLC will satisfy your specific financial services requirements. Services offered by other advisors may align more to your specific needs.
• All investment strategies have the potential for profit or loss. Different types of investments and investment strategies involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client's portfolio. The risk of loss can never be eliminated even if working with a professional.
• EP Wealth Advisors, LLC. is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the advisor has attained a particular level of skill or ability