Make a List and Check it Twice: Your 2020 Financial To-Do List

December 4, 2020

By Tim Courtney, Chief Investment Officer

The final weeks of the year can be hectic – especially during a pandemic, but it’s important that financial planning items requiring attention are squared away. Tying up loose ends now will give you peace of mind heading into the holidays and ensure a smooth tax filing season next year.

Though there are multiple year-end items we automatically address on your behalf, there are also a few that may be worth discussing further with your advisor as we quickly approach 2021.


1. Tax-loss harvesting: If appropriate, we sell meaningfully depreciated assets in client portfolios for losses to help off-set capital gains.1 While we already took this measure following the March market sell-off, there may be some further opportunity to book losses in certain areas.


2. Portfolio rebalancing: 2020 has produced an unusually large discrepancy among investment outcomes. Some companies and asset classes haven’t missed a beat during the pandemic while others have experienced immense disruption.2 As such, it may make sense to recalibrate your portfolio to ensure you’re not overexposed to certain areas of the market and underweight in others.


3. Roth IRA conversion: If you’d like to do a Roth conversion during the current tax year, you have until Dec. 31, 2020 to do so.3 It’s likely tax rates aren’t headed any lower with the new presidential administration, so it is worth considering under the right circumstances.4 We recommend consulting your advisor on the best course of action.


4. Estimated tax payments: If you’re self-employed or don’t have taxes withheld from other sources of taxable income, you have until Jan. 15, 2021 to pay your fourth-quarter estimated taxes. You do not have to meet this deadline if you file your 2020 tax return by Feb. 1, 2021 (this is difficult to do with reports mailed so late) and pay the entire balance due with your return.5


5. Year-end gifting: If you make charitable contributions, consider donating securities that have experienced significant gains this year. Not only does this support a valuable cause, but it also has tax advantages. Gifting appreciated stock avoids capital gains taxes for you and the recipient and makes you eligible for a potential income tax charitable deduction.6 Giving can also be done directly from an independent retirement account (IRA).7


We understand December marks a busy time, which is why we’re here to help with your year-end financial planning. If you have any questions, please contact your Exencial advisor as soon as possible.


Sources:
1. Investopedia (6/29/20) – Tax-Loss harvesting definition
2. Business Insider (11/21/20) – The K-shaped economic recovery dividing America also applies to companies. Here are 4 implications of that trend, according to a Wall Street chief strategist.
3. NerdWallet (10/23/20) – How to do a Roth IRA conversion in 3 steps
4. Tax Foundation (10/22/20) – Details and analysis of President-elect Joe Biden’s tax plan
5. Kiplinger (9/11/20) – When are 2020 estimated tax payments due?
6. Schwab Charitable (5/21/20) – Benefits of donating publicly traded securities to charity
7. Investopedia (10/29/20) – Donating to charity using money from an IRA

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