The end of the year symbolically brings an opportunity to both reflect and look forward. Of course, it also brings the tax year to a close and creates a natural planning opportunity.
Review the following important items to help end 2020 on a strong note and set yourself up for success in 2021.
Success has different meanings for different individuals. Depending on your phase of life and personal financial plan, this could be an opportunity for tax savings, for setting money aside for you or your family’s future, or for making a charitable contribution.
The best way to make a plan is to understand your options.
If you have gains from the sale of income-producing real estate, you may be able to defer the gains and the tax bill through a 1031 exchange. Keep these restrictions in mind:
If you don’t want to hold and manage a property, it is possible to buy into a new position through a Delaware Statutory Trust, which also may help with the process of identifying replacement properties.
Capital gains from the sale of any asset can be invested into a Qualified Opportunity Fund, which allows you to defer the gain.
The majority of investment has been into real estate development projects in a predefined opportunity zone. If managed correctly, you can defer and potentially reduce capital gains taxes until 2026.
Additionally, if you hold the new investment for at least 10 years, there is no tax on the gain from the new investment.
Similar to 1031 exchanges, this option isn’t right for everyone but can be an incredibly powerful financial tool for investors who have sizable gains and a long-term horizon.
If an opportunity zone doesn’t fit with your long-term personal plan, you may be able to offset capital gains with losses. Tax loss harvesting may allow you to offset some of your current or future capital gains by realizing losses within the portfolio.
If you regularly give to charity, consider options to take full advantage of the charitable deduction you receive.
With the standard deduction higher than ever and the reduction of certain itemized deductions, gift stacking (funding multiple years of charitable gifts in one year) has become an opportunity to utilize the tax benefit. This can easily be done using a donor advised fund.
While required minimum distributions (RMD) are waived for 2020, you may want to establish a plan to fund charitable giving directly from your IRA to meet your RMD and therefore reduce your taxable income in future years.
If you have an employer retirement plan or access to a health savings account (HSA), now is a great time to review your investment and savings choices.
Access to a retirement plan is a major driver of wealth creation. An HSA can help to fund your retirement needs in the future as well.
It is important to understand your options and take advantage of the strategies available to set yourself up for long-term financial success:
In conclusion, many business owners are facing steep tax bills that will come due on April 15, 2021. Proper planning now can soften the blow. Talk to your CPA about what strategies will work best for you.
Thanks to CLA’s Christopher Schuch and Austin Bennett for assisting with this article.
Mike Bosma, CPA, is Principal-in-Charge of the Reno office of CliftonLarsonAllen LLP. His NNBW column, “Covering Your Assets,” focuses on effective planning strategies for every business owner. Reach him for comment at mike.bosma@claconnect.com.
-->The end of the year symbolically brings an opportunity to both reflect and look forward. Of course, it also brings the tax year to a close and creates a natural planning opportunity.
Review the following important items to help end 2020 on a strong note and set yourself up for success in 2021.
Success has different meanings for different individuals. Depending on your phase of life and personal financial plan, this could be an opportunity for tax savings, for setting money aside for you or your family’s future, or for making a charitable contribution.
The best way to make a plan is to understand your options.
If you have gains from the sale of income-producing real estate, you may be able to defer the gains and the tax bill through a 1031 exchange. Keep these restrictions in mind:
If you don’t want to hold and manage a property, it is possible to buy into a new position through a Delaware Statutory Trust, which also may help with the process of identifying replacement properties.
Capital gains from the sale of any asset can be invested into a Qualified Opportunity Fund, which allows you to defer the gain.
The majority of investment has been into real estate development projects in a predefined opportunity zone. If managed correctly, you can defer and potentially reduce capital gains taxes until 2026.
Additionally, if you hold the new investment for at least 10 years, there is no tax on the gain from the new investment.
Similar to 1031 exchanges, this option isn’t right for everyone but can be an incredibly powerful financial tool for investors who have sizable gains and a long-term horizon.
If an opportunity zone doesn’t fit with your long-term personal plan, you may be able to offset capital gains with losses. Tax loss harvesting may allow you to offset some of your current or future capital gains by realizing losses within the portfolio.
If you regularly give to charity, consider options to take full advantage of the charitable deduction you receive.
With the standard deduction higher than ever and the reduction of certain itemized deductions, gift stacking (funding multiple years of charitable gifts in one year) has become an opportunity to utilize the tax benefit. This can easily be done using a donor advised fund.
While required minimum distributions (RMD) are waived for 2020, you may want to establish a plan to fund charitable giving directly from your IRA to meet your RMD and therefore reduce your taxable income in future years.
If you have an employer retirement plan or access to a health savings account (HSA), now is a great time to review your investment and savings choices.
Access to a retirement plan is a major driver of wealth creation. An HSA can help to fund your retirement needs in the future as well.
It is important to understand your options and take advantage of the strategies available to set yourself up for long-term financial success:
In conclusion, many business owners are facing steep tax bills that will come due on April 15, 2021. Proper planning now can soften the blow. Talk to your CPA about what strategies will work best for you.
Thanks to CLA’s Christopher Schuch and Austin Bennett for assisting with this article.
Mike Bosma, CPA, is Principal-in-Charge of the Reno office of CliftonLarsonAllen LLP. His NNBW column, “Covering Your Assets,” focuses on effective planning strategies for every business owner. Reach him for comment at mike.bosma@claconnect.com.
