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Monday Money Report

| December 07, 2020

Last week the market was up again, setting new all-time highs. Positive reports from DC about a stimulus package, as well as reduced unemployment, helped drive returns. 

As we get ready to close out 2020, there are a few actions you can take to impact your taxes, both short- and long-term.

Three possible ways to minimize your 2020 taxes are tax-loss harvesting, charitable contributions, and retirement account contributions. If you have investments that are not in a retirement account, tax-loss harvesting is when you sell investments that are at a loss.  That loss can offset realized gains, and even some ordinary income.  We generally prefer to do this year-round, but if you haven’t, take a look at your investments before year-end.

The CARES Act had two changes for charitable contributions.  First, even if you don’t itemize, you can still get a deduction of up to $500 for charitable donations. Second, if you are in a position to make a large donation, the CARES Act allows deductions of up to 100% of income for donations made in 2020.

If you aren’t sure which organizations you want to give to, or you want to put aside money for charitable gifts in the future, you can create a Donor Advised Fund. Contributions of up to 60% of your income are deductible this year.  A Donor Advised Fund is similar to a private foundation, without the administrative burden.  You open the account, donate the money – with a current year tax deduction.  Then, at any point in the future, you direct the fund to make donations to the non-profit of your choice.

Depending on income levels and employer-sponsored retirement plans, you may also be able to contribute money to an IRA or other retirement account.  Typically, you have until April 15th to make these contributions.

 If you are concerned about owing taxes, you might want to have a tax projection done.  If you typically owe, you could be hit with a failure-to-pay penalty, for not having enough withheld during the year.  If you are retired, a way to mitigate this is to take a distribution from your retirement accounts to cover the taxes due.  For example, you can take a $10,000 distribution from your IRA, and have $2000 withheld to cover state taxes, and $8000 withheld for federal.  You don’t receive any money but your tax bill is covered.  If you are still working, you can make a quarterly payment before January 15th.

Finally, on the long-term side, Roth conversions continue to make sense for some people. It’s worthwhile to talk with your CPA and financial advisor to see the long-term impact of these conversions.  And by long-term, I mean your lifetime plus ten years. 

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Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. CovingtonAlsina and Great Valley Advisor Group are separate entities from LPL Financial.

All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

This information is not intended to be a substitute for specific individualized tax advice.  We suggest that you discuss your specific tax issues with a qualified tax advisor.

The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investment(s) may be appropriate for you, consult with your attorney, accountant, and financial advisor or tax advisor prior to investing.