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  • Writer's pictureShelley Yates

5 End of Year Tax Moves to Consider

With only a month left to go in the year, it’s time to think about year-end tax planning that can potentially lower your tax bill in 2020 and beyond. Here are five potential tax moves to consider before the end of the year. Charitable Donations If you have investments that underperformed, rather than giving them away, selling them at a loss and donating the proceeds allows you to reap the tax-savings capital loss and claim the tax-saving charitable-write-off (if you itemize deductions). Likewise, if you donate investments you have owned for over a year that overperformed, instead of selling them and donating cash, you can deduct that as a charitable donation (if you itemize) and avoid capital gains taxes on those shares. Meanwhile, the charitable organization can sell the donated shares without owning taxes on them.

College Tuition You can claim a 2020 tax credit if you prepay tuition (for education beginning January to March of 2021) if your adjusted gross income allows you to qualify for the American Opportunity college credit (up to $2,500 per eligible student) or the Lifetime Learning higher education credit (up to $2,000 per family). However, these credits are phased out if your income is too high, though you may still qualify to deduct some college tuition costs.

Qualified Charitable Distributions If you have reached 70½, you can make cash donations up to $100,000 to charities directly from your IRA. This is what is known as qualified charitable distributions (QCDs). Though you do not receive an itemized charitable deduction for this, QCDs are federal income tax-free. They can also be used to satisfy all or part of your required minimum distribution, and QCDs have other tax advantages as well. Defer Income If you believe you will be in the same or lower tax bracket in 2021, deferring some of your taxable income to 2021 postpones your income until you believe it will be taxed at lower rates. This may also be helpful if you believe you will affected unfavorably by income phase-out rules that reduce your tax breaks.

Roth IRA Conversions Ideally, converting a Traditional IRA to a Roth should occur if you expect to be at a higher tax bracket in retirement. However, because there are tax implications of the conversion, many believe that delaying a Roth conversion risks facing a higher tax bill on the conversion in the future. After funds are converted to a Roth account, all income, gains, and qualified withdrawals are federal income tax free. While a Roth conversion may cost you in the short-term, it may be worth it to save on taxes in the future. If you have any questions about these or any other year-end tax planning scenarios, please do not hesitate to contact me. I’d love to hear from you.

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