
Daniel Epstein, CPA, MBA
Sr. Tax Director
The year is almost over, but there’s still time to strategically minimize your tax liability. Consult with your Mercer Advisors team to help you make the right tax moves. These 10 tax tips for 2020 can help you save money:
If you offer retirement plans or health savings accounts to your employees, have them review and maximize their contributions. If you don’t offer plans, you may have time to establish them.
On an accrual basis, you should make sure your accounts receivables and customer deposits are current. On a cash basis, you can defer your invoicing or customer payment requests until after year-end. Besides reporting losses, you should use any credit carryovers that will expire by year’s end. Finally, if you run any businesses with your spouse, consider treating those ventures as disregarded entities.
Prepay for expenses where you can, and purchase assets that have advantageous depreciation rules by the end of December. Consider increasing your basis in partnerships or S-Corporations (e.g. contributing capital or loaning money to them) to deduct available losses, including business vehicle leases.
The 2018 Tax Cuts and Jobs Act means deductions for you as a business owner. Consider your net profit in relation to your payroll to maximize credit. You should also think about separating out parts of your business in order to maximize your deductions. If you implement other tax tips from this article, they could bring your income under certain thresholds, which may increase your total 20% deduction.
While your advisor will optimize gains and losses within your investment portfolio, there are other ways to optimize your total tax liability. For example, pull together a list of all your sources of income for the year, and review the different sources, including wage income, pension income, social security, any side jobs, property sales, stock grants that vest, and even gains in accounts outside of Mercer Advisors, etc. In addition, ask your advisor about using methods like installment sales or like-kind exchanges when disposing assets. You can also take measures that can help you manage the Net Investment Tax. Finally, be aware of tips like the 14-day rental limit on your vacation home.
Review your corporate benefits and maximize your cafeteria plan options. These plans allow for you to pay for childcare, health expenses, and parking/transit expenses on a tax-favored basis. They are often called HSA (health savings account), FSA (flexible spending arrangement), DCP (Dependent Care Program), and Parking and Transit. Routing your expenses through these accounts can create significant tax savings! If there are any unused amounts in a plan near year-end, it may still be possible to use them toward other qualifying expenses such as medical or dependent care (under Notice 2020-29). Ask your plan custodian for more details. Popular current tax credits include purchasing qualifying electric vehicles or solar equipment.
Consider converting some of your Traditional IRA assets to a Roth IRA. Roth IRA’s are not subject to required minimum distribution requirements, and Roth withdrawals after you retire will be tax-free. Amounts converted would be taxable income this year, but it may make sense due to the long-term benefits of the conversion. Especially consider this if your income is lower than in previous years as you might be in a lower tax bracket than normal. Ask your advisor if a Roth conversion may be right for you this year.
If your annual itemized deductions are close to the standard deduction amount, consider ”bunching” your actual deductions, such as charitable contributions, into one tax year. Strategically, you can use actual deductions and the standard deduction in alternating years. Consider utilizing donor-advised funds or donating highly appreciated stock directly to charity. You will not be taxed on any gains when you donate the stock, which creates a significant tax-and-gifting advantage compared to selling the stock first, then donating the net proceeds. As a reminder, state and property taxes are now maxed at $10k per year, so it may not make sense to accelerate paying your property taxes in the current year if your municipality allows you to do so.
Take advantage of the annual gift-tax exclusion, which allows you and your spouse to gift tax-exempt amounts of up to $15,000 to another person ($30,000 if you’re married and use a gift-splitting election) every year without requiring additional IRS paperwork. Consider gifting highly appreciated assets to recipients who may be subject to lower tax liabilities.
COVID-19 has affected many people’s businesses and life situations, so consider adjusting your wage withholdings or estimated tax payments based on recent changes. Inheritance, marriage, divorce, and higher education expenses, along with retirement, can affect your tax situation in different ways. Your status on December 31 determines your filing status. Make sure your advisor and tax advisor are aware of these changes as soon as they happen, so they don’t negatively impact your overall tax rate.
Start planning your tax strategy and consult with our tax advisors today. For a complete list of 2021 federal quarterly tax payments, see our updated calendar.
Mercer Advisors Inc. is the parent company of Mercer Global Advisors Inc. and is not involved with investment services. Mercer Global Advisors Inc. (“Mercer Advisors”) is registered as an investment advisor with the SEC. The firm only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate, but is not guaranteed or warranted by Mercer Advisors. Content, research, tools, and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. For financial planning advice specific to your circumstances, talk to a qualified professional at Mercer Advisors. Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment, investment strategy or product made reference to directly or indirectly, will be profitable or equal to past performance levels. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals may materially alter the performance and results of your portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client’s investment portfolio. Historical performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results. Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark. This document may contain forward-looking statements including statements regarding our intent, belief or current expectations with respect to market conditions. Readers are cautioned not to place undue reliance on these forward-looking statements. While due care has been used in the preparation of forecast information, actual results may vary in a materially positive or negative manner. Forecasts and hypothetical examples are subject to uncertainty and contingencies outside Mercer Advisors’ control. Mercer Advisors is not a law firm and does not provide legal advice to clients. All estate planning documentation preparation and other legal advice is provided through its affiliation with Advanced Services Law Group, Inc.
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