6 Tax Planning Checks That Could Save Thousands!

March 9, 2021

Now that tax time is here; you’re probably starting to load everything into your tax preparation software or send documents to your CPA.  There are many tax documents mailed to you or available online, but what about some of the items that are tougher to keep track of?  Here are six tax strategies that are often missed or not reported:

1. 529 Contributions/Distributions

Other than your year-end statement, you may not receive something specific to send to your accountant that outlines the amount you put into 529 plans during 2020.  Make sure to track this information down and pass it along to your accountant to confirm you receive the appropriate deduction on your state income tax return.

2. Qualified Charitable Distributions

If you are 70 ½ or older, you may have contributed to a qualified charity directly from your IRA, which is crucial information for your CPA to have!  Custodians do not track where IRA distributions go, so your 1099-R tax form will likely show the total distribution as “taxable.” If you do not let your CPA know part of this went to charity, you may be taxed on the total distribution.

3. Charitable Contributions

If you made gifts of cash, appreciated securities, or other property to qualified charitable organizations during the year, you will likely receive a letter from the organization documenting your gift.  Be sure to pass this information along to your CPA, as these donations are not captured on an IRS form.

4. CARES Act IRA Reversals

In 2020, the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, waived the required minimum distributions during 2020 for IRAs and retirement plans, including beneficiaries with inherited accounts. With that in mind, if you took an RMD earlier in the year and then reversed that distribution, you need to let your accountant know. Custodians are reporting the total distribution only on Form 1099-R, and if you do not let them know you rolled funds back into your IRA, you will not only pay additional tax this year but could down the road as well.

5. IRA Contribution Deduction

You have until April 15, 2021, to contribute to your IRA for the 2020 tax year.  In certain cases, you may qualify for this contribution to be tax-deductible.  If you – and your spouse, if married – are not covered by an employer-sponsored retirement plan, you can deduct the full contribution to your traditional IRA no matter how much you earn.  However, the maximum you can deduct per person is $6,000 for 2020 and individuals 50 and older can put in an additional $1,000 as a “catch up” contribution.

6. Health Savings Account (HSA) Contribution Deduction

Similar to the IRA deduction noted above, you have until April 15, 2021, to make a deductible contribution to your Health Savings Account (HSA) for the 2020 tax year.  However, being able to contribute first requires that your health plan be HSA-qualified.  Similar to the IRA contribution noted above, be sure to confirm with your HSA custodian that any contributions you make post year-end that you want on your 2020 tax return are coded as a “prior year” contribution.

Hopefully, the above information helps you send the appropriate documentation to your CPA and provides you with a few options to maximize your tax savings for the 2020 tax year.

No representation is being made that any strategy shown will or is likely to achieve results similar to those shown in this presentation. BDF does not provide legal, tax, insurance, social security, or accounting advice. Clients of BDF should obtain their own independent tax, insurance, and legal advice based on their particular circumstances. The information herein is provided solely to educate on a variety of topics, including wealth planning, tax considerations, insurance, estate, gift, and philanthropic planning.

Neil Teubel, CFP®, MS is Director of Financial Planning and a Wealth Manager at BDF. Neil has a passion for Financial Planning and heads BDF’s Financial Planning Committee which strives to ensure every client benefits from proactive, best in class financial planning. Neil has been recognized by Chicago Magazine as a Five Star Wealth Manager and by Forbes as a top Next-Gen Wealth Advisor nationally. He received an undergraduate degree in Financial Planning from the University of Illinois Urbana-Champaign and a master’s degree in Personal Financial Planning from Texas Tech University, where he earned his CERTIFIED FINANCIAL PLANNER™ certification.

Matt Foltz, CPA, CFP® is a Wealth Manager at BDF.  He sits on the firm’s Financial Planning Committee which is dedicated to ensuring each client benefits from proactive, best in class financial planning.  He earned his Bachelor of Science in Accountancy from Saint Joseph’s College and his Masters of Science in Accountancy from the University of Notre Dame.  Matt is a Certified Public Accountant and a CERTIFIED FINANCIAL PLANNER™ professional.