Top 3 things to discuss with your clients before year-end

Top 3 things to discuss with your clients before year-end

By Brian Nuttall, CPA, JD

For most people, the end of the year is synonymous with holiday celebrations. For CPAs, it’s also a time for tax planning. This is because taking certain actions now—before December 31—can go a long way toward helping our clients maximize their tax savings. If you haven’t already, now is a good time to reach out to your clients to discuss the following three things:

Options for charitable giving

With the higher standard deduction and limitation on state and real estate taxes, charitable giving doesn’t offer much of a tax advantage. Bunching charitable gifts (and subsequently, deductions), however, can make a measurable difference. For instance, if your client usually gifts $10,000 a year, they may want to consider gifting nothing in 2020 and taking the standard deduction, and then gifting $20,000 in 2021.

Clients who are 70½ years or older may want to consider making a charitable contribution in 2020 using an IRA Qualified Charitable Distribution. This is a great way to forever avoid taxable income on the IRA assets. Taxpayers over 70½ years old can gift up to $100,000 a year using this method.

Your client can also gift long-term (i.e., held for more than one year and one day) publicly traded stocks to charity. The deduction would equal the fair market value of the stock, and your client would avoid capital gain. Keep in mind this opportunity does not apply to publicly traded partnerships, other limited partnerships, or LLCs.

Timing for the sale of stock

We don’t know what’s going to happen with tax rates in the new administration. But we do know tax rates for 2020. The question becomes: Should your client sell stock now and take the income in 2020, or wait and see what happens next year?

Clients who have concentrated positions may want to take advantage of lower brackets in each year. With ISOs for instance, splitting the sale between 2020 and 2021 could help to avoid or minimize AMT. Clients holding NSOs may want to exercise their options in both 2020 and 2021 to take advantage of the tax brackets as much as possible.

Coronavirus-related distributions from retirement plans

A provision in the CARES Act allows qualified individuals to take up to $100,000 in distributions from eligible retirement plans before December 31, 2020—without incurring early-withdrawal penalties. The distributions must be paid back within three years, and the income can be spread equally across 2020, 2021, and 2022.

The two key words here are “qualified” and “eligible.” Only individuals who meet certain criteria for being adversely affected by COVID-19 will qualify for this relief measure. Likewise, these individuals may take distributions from only eligible retirement plans (as outlined in the CARES Act).

The clock is ticking…

Thankfully, 2020 is almost behind us. If you haven’t already, consider bringing up these points to your clients and working closely with your tax advisor to implement a tax planning strategy as soon as possible. At Elevate, we provide back-off tax advice for RIA clients to help streamline the process. If you have questions or would like to learn how we could help you position your clients for a better 2021, contact us today.