Proactive 2020 Tax Planning

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Hi. I’m Pete McKenna from Modera Wealth Management.
Hope you’re doing well today. Today we’re going to be talking about tax planning for 2020 and it’s important to acknowledge that this isn’t tax advice the only person who can give you really good tax advice is your tax professional. We’re talking about planning out things that need to happen for you and understanding your tax situation to see if this might be an opportunity for you. Your tax professional will know the laws better than us and they’ll know what your personal tax situation is and put it all together into the right plan for you.

So, why is this important in 2020? Well, for one thing our federal deficit is big and growing. There are planned deficits due to the tax cuts and jobs act and there’s a ton of spending going on because of the pandemic and eventually these bills will have to be paid by someone. Unfortunately, our clients are some of the ones who are going to be asked to pay this bill in the future.

Right now, another reason why it’s important is your 2020 income maybe lower than it was in year’s past or maybe in the years ahead and it could be because you didn’t have to take your Required Minimum Distributions from your retirement accounts this year. Maybe your business income is off or maybe your compensation from your employer is off. That’s another reason why 2020 maybe low and its good to pull money into or income into 2020.

The third reason is we have these historically low tax rates from the tax cuts act from a few years ago. They’re all scheduled to revert in 2026 if nothing else is done but we also have an election coming up. There’s a really good chance that in November, if things change, the tax regime in Washington could be very different as soon as next January.

So, Whats the standard practice for taxes? We typically look to delay taxes and defer the gains as long as possible because a dollar paid in taxes today is more expensive than a dollar paid in taxes at a date in the future. Right now the tax rate savings could be enough to compensate you for paying that tax earlier than you really have to. So the range of rates are pretty significant from 0-37% and the high end has been higher in the past and maybe in the future. So if your tax situation is such that you are paying 24% or less on your ordinary income or 15% less on your capital gains certainly in a place where you may want and try to fill those brackets and make sure you take advantage of those lower rates.

So, how can you do that? Things you can do are you can accelerate income in 2020 or delay deductions until 2021.

So things you can do, if you’re a business owner you may want to delay some of your business expenses until 2021. If you’re an individual, you may want to consider doing Roth conversions or even Roth contributions to get more tax free assets in your mix and that may have advantages for estate planning as well. Then the third thing is you may be sitting on assets that have appreciated in value over time and maybe this is a good time to consider selling them, recognizing the gain and paying the tax at a lower rate. All food for thought for you. What is it that you should do right now? I recommend you reach out to your Modera Advisor, talk to them about your situation, talk to them about this tax situation and see if there’s a way you guys can plan to create a conversation or start a conversation with your tax professional.

I hope all is well and that you have a good day. Thank you and Thanks for you time Bye-Bye.

Disclosure: Modera is an SEC registered investment adviser which does not imply any level of skill or training. For additional information see our Form ADV available at which contains a full description of our business, operations and service offerings including fees. Statements made in the podcast are not to be construed as personalized investment or financial planning advice, may not be suitable for everyone and should not be considered a solicitation to engage in any particular investment or planning strategy. Statements made are subject to change without notice.