Financial Q&A: Don't forget to check tax-planning opportunities that expire Dec. 31 - Florida Today

Dan Moisand | Guest columnist

Q. With all the emergency stuff passed this year, I am wondering if there are any year-end things to think about, or is it too late to do anything anyway?

-- Dave in Indian Harbor Beach

A. Dave, 2020 has been a different kind of year and certainly so with respect to financial planning and taxes. The CARES Act passed in the spring provides several provisions that expire at the end of the year but might still be helpful.

Here are some of the basics about them.

Normally a distribution from an IRA or retirement account is taxable and an additional 10% penalty can apply for those under age 59½. The CARES Act created a “COVID-related distribution.” If you or someone in your household qualifies, any distribution from an IRA made in 2020, up to $100,000 of your retirement funds can be accessed without being subject to the 10% penalty. Several items can cause eligibility including being diagnosed with COVID-19 or having your livelihood affected by the shutdown such as a furlough, layoff, or reduction in work.

Further, you can spread the taxable income from the distribution evenly over three tax years (2020-2022) or elect to recognize it all in 2020. You can even get any taxes paid refunded to you by returning the funds to the applicable account within three years of the date of the distribution. See the post from May on our website titled, “Can I get money from my IRA tax free due to Covid-19?” for more details including a complete list of eligibility requirements.

The CARES Act also allows for 401(k) and similar plans to offer Covid-related distributions and loans up to $100,000, which is twice the usual loan limit of $50,000. No plan is required to offer either COVID-related distributions or loans so you will need to check with your benefits department to see if either is an option for you.

For 2020 only, older taxpayers and beneficiaries of IRAs or retirement accounts do not have to make Required Minimum Distributions (RMD). Though no distribution is required this year, taxpayers subject to RMD should consider if they should take some money out of these accounts voluntarily or convert some of their retirement funds to Roth accounts. This could be a wise move if the voluntary distribution or converted amounts would be taxed at a lower rate in 2020 than the rate payable in future years.

Comparing years and deciding on which year specific transactions should be made is a cornerstone of tax planning. One of the most flexible items under consideration in this planning is charitable gifts. For 2020 only, anyone who uses the standard deduction can take an “above the line” deduction for up to $300 of donations made in cash, by check or credit card. That’s not a huge sum but it will allow taxpayers that normally don’t get a deduction for charitable gifts to get something for their generosity.

For itemizers, there are normally limits to the amount of charitable deductions allowed on Schedule A. For 2020 only, there is no cap on cash, check or credit card contributions. This ability opens a host of planning opportunities for those so charitably inclined.

As I mentioned in my last Q&A, because so many non-profit organizations have been unable to conduct fundraising events, donations in 2020 may be more impactful than ever. We have many great local charities that could use some help. To learn more about the work of local charities, I recommend connecting with the Community Foundation for Brevard: www.cfbrevard.org.

Dan Moisand, CFP®, a past national president of the Financial Planning Association, has been featured as one of America’s top financial planners by at least 10 financial planning publications. He can be reached at www.moisandfitzgerald.com or 321-253-5400, ext.101.

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