Annual Tax Planning Amidst A Pandemic

The year of the Pandemic has created chaos for most businesses and many families. Uncertainty remains over elections, vaccines and more federal relief for both business and states. Regardless of the need and your best of intentions, you cannot print your way to prosperity. The tax bill will arrive eventually, and it would behoove you to develop your tax strategy for these strangest of times.

The typical annual tax strategy is looking for income variability, strategic deductions or expenses and change in filing status. This year’s addition of the CARE’s act passed in March and added more confusion for some but more opportunity for others.

During our working years, marginal tax brackets don’t change frequently from year to year. If you were in the 12% bracket last year, you probably would be in a normal year. However, this is not a normal year. If you have money in tax deferred accounts such as IRA’s and 401k’s and your income went down, this maybe the year to consider doing Roth conversions and taking advantage of a lower marginal tax bracket.

RMD’s (Required Minimum Distributions) were also put on hold this year and not required, regardless of your age. Just because you don’t have to take the RMD doesn’t mean you shouldn’t.  Work with your planning professionals to figure out the best long-term strategy for you and your wealth.

Even though RMD’s are not required, QCD’s (Qualified Charitable Deductions) are still viable gifting options.  For those of you taking the standard deduction, who are over age 70.5 and are charitably inclined with tax deferred IRA’s, this strategy needs considered.

There are very specific but lenient rules on using tax deferred assets this year if you were impacted by the Pandemic. “Impacted” is debatable but if your income was reduced or you were infected, it would be hard to argue against not being impacted in my opinion. You can withdraw from your IRA or 401k without the typical 10% penalty, up to $100,000 and pay the taxes over the next few years. For families in need, this is a huge resource.  Keep in mind, you saved the money for your retirement and if you use it now, it won’t be there later.

There are two tax codes in the United States, and many believe that is one for the rich and one for the poor. Our observation is that it is actually one for the informed… and one for the uniformed. Arguably there is a third category of people who were aware of the tax code but simply didn’t get around to utilizing the strategies available.  To know and not to do has the same result of being uniformed.

Our hope is for you to use this chaos as a time to get your tax strategy in place for your future. Not just this year, but for years to come. Work with a qualified professional and ask them about bracket bumping, double stacking and other tax planning strategies. This will be an important year for our country financially.  The same is likely true for your household.

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