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Tailored Tax Planning Strategies Based on Your Financial Goals

By Kevin Umberger
Senior Manager at Blue & Co.

2020 has been a year of tremendous uncertainty. As this year ends, we take this opportunity to refresh the tax planning strategies that will be most applicable to your tax situation in 2020 and the years beyond.

Now that we are past (well, sort-of past) the 2020 elections, we have some idea of how the political changes may impact tax policy in future years.

At this moment, it appears that Senator Biden will become the 46th president of our country. Further, the democratic party holds the majority in the House of Representatives. More uncertainty exists in the Senate, where a January run-off in Georgia will decide the remaining two seats. If one of the Republican candidates win, then the Republican party will have the majority in the Senate. If both go to the Democratic party, they will hold the Senate majority and will be able to use the budget reconciliation process to enact changes to the tax law (assuming no one sits across the aisle).

We have written on President Elect Biden’s tax policy in the past, but the general idea is that for high income individuals, over $400,000 of annual income, rates will go up and deductions will be lost.

First, let’s address strategies for those who are struggling.

Tax Planning Strategies for Those in an Unfavorable Financial Position 

Strategies here will focus on taking advantage of current losses and generating positive cash flow.

1. Utilize Net Operating Losses to Generate a Cash Refund

Included in the CARES Act was a provision allowing taxpayers the opportunity to carry back current losses to offset prior year income. More specifically, losses created in tax years 2018, 2019, and 2020 can be carried back 5 years.

This provision creates a tremendous opportunity for companies to offset prior year income that may have been taxed at higher rates before 2018. To take advantage of this opportunity, companies should consider accelerating deductions in the current year, ultimately increasing the net operating loss being reported. The larger the loss, the greater the benefit you may have when carrying back to prior years.

2. Catch up Deductions on Qualified Improvement Property

Included in the CARES Act was a technical correction related to the bonus depreciation of qualified improvement property.

With the change, companies are now allowed to use bonus depreciation on qualified improvement property. In the past, QIP was commonly thought of as a retail and restaurant issue. However, it is truly much broader and applies to almost any improvement made to the interior of an owned or leased building. Even better, the CARES Act made this change retroactive, meaning that companies may fully deduct the cost of qualified improvements dating back to January 1, 2018.

To take advantage of this opportunity, companies may either reflect the entire change on their 2020 tax return by reporting an accounting method change or by amending both 2018 and 2019 tax returns to report bonus depreciation on all qualified property.

3. Awareness of the CARES Act Stimulus Payment

In late March, the IRS was directed to issue stimulus checks to all qualified taxpayers in the United States.

Although the payments were based on either 2018 or 2019 tax return information, they are structured as advanced 2020 credits. Taxpayers will want to understand the implications if the check they received does not match the amount of credit calculated on their 2020 return, as the credits have a possibility of phasing out for higher-income taxpayers. If the amount they received was less than the credit calculated on the 2020 tax return, additional refunds can be claimed.

On the other hand, if the amount they received was more than the credit calculated on the 2020 return, you will not be required to repay the excess credit received.

4. Capture the Above-the-Line Charitable Contributions Deduction

In contrast to prior years, every taxpayer is now entitled to a charitable contribution deduction.

In 2017, the Tax Cuts and Jobs Act (TCJA) doubled the standard deduction and limited many itemized deductions, making millions of taxpayers unable to take advantage of their charitable contributions. Typically, only taxpayers who itemize were able to receive a tax benefit for charitable contributions. However, the CARES Act has created an above-the-line deduction up to $300 for cash contributions from taxpayers who do not itemize.

To take advantage of this new deduction, taxpayers need to make their cash donations by the end of the year.

Tax Planning Strategies for Those in a Favorable Financial Position 

The four strategies below will focus on deferring deductions and accelerating income.

1. Take Advantage of Low Interest Rates and Generous Lifetime Exemptions Before They Change

Historically low interest rates and elevated lifetime gift and estate tax exemptions present a powerful estate-planning opportunity.

Many estate and gift tax strategies depend on the assertion that assets will appreciate faster than the interest rates prescribed by the IRS. Further, the economic hardships created by COVID-19 has been depressing the values of many assets. There is still a small window of opportunity to employ estate-planning techniques that take advantage of the current low interest rates and high lifetime gift exemption.

President Elect Biden has also made it clear that he intends to reduce the lifetime exemption thereby increasing the taxability of generational wealth transfers.

2. Retirement Planning; Delay your RMDs

A key change within the CARES Act pushed the required minimum distribution age to 72.

Retirees typically must start to withdraw money from their traditional IRA and 401(k) at the age of 70-1/2. This change allows taxpayers to now delay retirement distributions and let their money continue to grow inside the investment. Taxpayers need to make sure they can afford to do without the income from their retirement account before deciding to delay distributions.

If possible, some taxpayers may be able to rely on other sources of income such as social security, pensions and other income generating investments.

3. Converting RMD to Roth IRAs

Another, potentially bigger, change just for 2020 is that RMDs are waived altogether. Regardless of your age, if you were due to receive an RMD in 2020, you can elect not to take it. However, if you elect not to take the RMD in 2020 it will increase the income subject to tax in future years.

Utilizing an alternative planning approach, some taxpayers are taking the RMD or more and converting to a Roth IRA account. In this case you accelerate income into 2020 and pay tax on the distribution when rates are possibly lower. Then all appreciation in the account grows tax free.

There are many additional factors to consider with this approach and I strongly recommend you reach out to your Blue & Co. advisor if you would like to further explore this topic.

4. Opportunity Zones Still Present a Substantial Tax Break for Investors

Opportunity zones are one of the most powerful incentives ever offered by Congress for investing in specific geographic areas. If done correctly, an investor can defer paying tax on gains invested in an opportunity zone until as late as 2026.  Further, they only recognize 90 percent of the gain if the investment is held for five years.

Also, if they hold the investment for ten years, they pay no tax on the appreciation of the opportunity zone investment itself. If they’re worried about capital gains rates going up under a new administration, this may provide an excellent investment opportunity.


This year more than any other it is important to focus on your goals first and then tailor your tax planning strategies to meet your individual goals.

The planning concepts available are too voluminous to cover in one article and they are not a one-size-fits-all answer. Our team at Blue & Co. welcomes the opportunity to join you in a planning discussion that will help you develop a winning strategy that is right for you and your goals.

For more information or to contact your local Blue & Co. advisor, click here.

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