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Educational Resources

By Jeffrey R. Wolfe, Senior Vice President, Manager of Wealth Planning Strategies

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So, the traditional end of tax season would be tomorrow, and while the tax world has been pretty uneventful this year, everything else this year has been anything but normal.  There have been some changes due to the SECURE Act, but the Covid-19 virus has rattled many things.  Let’s take a look at what we’ve discussed during this Tax Tip Tuesday series, and then consider some changes due to the SECURE Act and Covid-19:

As tax season started, we discussed that most of the income tax rules had very little changes other than indexing.  We discussed considerations for filing early and some specific questions you may want to cover with your tax professional as well.  The IRS Dirty Dozen again warned us of the most common tax scams.

That said, retirement planning rules have had many changes due to the SECURE Act.  We discussed how Required Minimum Distributions have changed, with the primary modification being that anyone born on or after July 1, 1949, will now start RMDs when they attain age 72.  We also discussed how you can jump start your retirement savings with your tax refund.

Two other big changes from SECURE were also discussed.  We learned that there are new planning opportunities for business owners, and the Kiddie Tax laws were modified back to the old rules.

We discussed how higher income earners will continue to face higher taxes due to the net investment income tax and the Medicare surtax on earned income.

During tax season the Covid-19 pandemic hit leading to a huge impact on how we work and interact, along with new tax changes.  Primarily, federal tax filings and payments have been deferred to July 15, 2020.  Also, we have been granted a 2020 RMD holiday meaning you do not have to take minimum distributions from your IRAs this year.  There was also a stimulus package passed that will have checks sent to some taxpayers, and there are many provisions for businesses to consider while dealing with the pandemic and its effect.

With all of this said, even though the 2019 tax season may not be over for you, there are still reasons to look forward to what you should consider for tax year 2020.  Some things to think about:

  • Review your paycheck withholdings to make sure that you continue to withhold the appropriate amount in the current tax regime.
  • Check the Covid-19 options for delaying tax filings and payments, contributions to 2019 IRAs and work-based retirement accounts until the new tax deadline and decide whether the stimulus payments or business planning options may be something for you to consider.
  • Working with your tax professional, determine if there are modifications needed to your tax planning as a result of the market volatility and business disruptions.
    • Consider taking certain gains or losses in this taxable year. Choosing the appropriate time to take such actions can help control your potential tax liabilities.
    • Look at fully funding employer-sponsored plans and/or tax-deductible IRAs. Maximizing these contributions may lower your tax bracket.
    • Review Roth retirement planning options, especially in this volatile market. Converting existing pre-tax assets to a Roth IRA, funding a Roth IRA, or making Roth salary deferral contributions through your 401(k), 403(b), or 457(b) plan now may provide more after-tax cash flow during retirement. Recall, though, once you make a Roth conversion, it cannot be reversed.
    • Consider tax-exempt investments and accounts like tax-exempt municipal bonds or life insurance.

While the tax rules haven’t had many changes, life sure has.  Stay strong and don’t let your tax situation slip out of mind due to everything else going on in the world.  Diligence, whether it be hand washing or tax management, isn’t easy, but is very effective.  Work with your tax advisor and your Benjamin F. Edwards financial advisor to put together a plan that is right for you.

April 14, 2020 |