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The following planning strategies are based upon current tax laws. The team at SFMG is closely monitoring the tax changes that may impact our clients post-election. We will communicate any planning opportunities that arise. 

The Covid-19 pandemic and its economic effects have prompted the government to pass legislation that will affect tax planning in 2020. The Tax Cuts and Jobs Act also continues to impact every taxpayer, making it more important to evaluate various tax planning ideas and actions. We recommend discussing tax planning strategies with your wealth management team at SFMG and your tax firm.

The following are some items to consider before year-end:

2020 CARES Act

The CARES Act provided sweeping relief to taxpayers during the Covid-19 pandemic. The following points are the most relevant to our clients:

  • Required Minimum Distributions (RMDs) have been waived for 2020. This applies to individual retirement accounts (IRAs), employer retirement plans, 403(b) and 457(b). The suspension applies to personal retirement accounts as well as inherited accounts.
  • Penalties for early distributions (under age 59.5) from retirement accounts have been suspended for 2020.
  • Up to $100,000 may be withdrawn from IRAs and/or employer plans (combined limit).
  • The withdrawal must be made for a qualifying reason such as: being diagnosed with COVID-19, having a spouse/dependent diagnosed, experiencing adverse financial consequences related to COVID-19, being unable to work because of lack of childcare or owning a business that closed or operated under reduced hours because of the disease.
  • It is important to note that withdrawals will be taxable, but income may be spread over 3 years.
  • The maximum allowable charitable deduction has been increased to 100% of adjusted gross income, specifically for cash gifts made directly to charities. Consider making a larger charitable contribution this year, using the increased charitable deduction limit to more easily increase the amount of itemized deductions over the standard deduction.
  • Payroll Protection Plan (PPP) forgivable loans will be tax-exempt federally, but may be taxed at the state or local levels.
  • PPP loans are meant to cover certain operating expenses like payroll, utilities, rent, and interest expenses. However, expenses paid with PPP loan funds are nondeductible.


2020 SECURE Act

This bill modifies requirements for employer-provided plans, individual retirement accounts (IRAs), and other tax-favored savings accounts. The following points are the most relevant to our clients:

  • The SECURE Act repeals the maximum age of 70 for Traditional IRA contributions and allows taxpayers to continue to make contributions to the extent that the taxpayers receive earned income. Contribution limits apply.
  • The age of the required beginning date for mandatory distributions has been increased from 70.5 to 72 for those who were born on 07/01/1949 or later.
  • Distributions from IRAs inherited after January 1, 2020 must be made within ten years of the account holder’s death, except for spousal IRAs. Distributions over the life expectancy of a non-spouse beneficiary are allowed if that beneficiary is a minor, disabled, chronically ill, or no more than ten years younger than the deceased at the time of death. Note that for minors, this exception only applies until they reach the age of majority. At that point, the distributions must be made within ten years.
  • Penalty-free withdrawals may be made from certain retirement plans if a child is born or adopted.


Tax Cuts and Jobs Act Updates

  • Tax rates remain the same for 2020 with a slight decrease to the income ranges between brackets. The top tax bracket is 37%.
  • The standard deduction increased from $24,400 to $24,800 for Married Filing Jointly filers and from $12,200 to $12,400 for Single filers.
  • Itemized deductions for taxes paid remain limited to $10,000. “Taxes paid” include state and local income taxes, sales tax, and property tax. If property taxes are less than $5,000 per year, consider doubling property tax payments every other year by making one payment in January and the other at the end of the year. This may help increase the amount of itemized deductions over the standard deduction, allowing a larger deduction every other year.
  • Interest on mortgage debt for homes purchased after 12/15/2017 have a reduced maximum value of $750,000 ($1,000,000 in 2017).


Take Advantage of Tax-Deferred Growth

  • Take full advantage of available retirement plans (401k, IRA, SEP-IRA, defined benefit, etc.) and other non-qualified plans (executive bonus, carve-out plans, deferred compensation, etc.) to defer and/or minimize income taxes over the long term. IRA Contribution limits increased to $6,000 with an additional $1,000 catch-up contribution if over age 50. Contribution limits for 401k’s increased to $19,500, with an additional $6,500 catch-up contribution if over age 50.
  • Note that the window to make contributions to an employer plan typically closes at the end of the year, while taxpayers generally have until the April 15th income tax deadline to make IRA contributions to Traditional and Roth IRAs.
  • If eligible, maximize contributions to Health Savings Accounts, which are pre-tax and tax-deferred funds that can be withdrawn tax free for future medical expenses. Taxpayers may be able to defer an additional $3,500—$7,000 of income for this purpose.


Revisit Charitable Giving Strategy

  • Please refer to the CARES Act section above to understand how the CARES Act has affected charitable giving.
  • Use a Donor Advised Fund to make a future donation to charity but receive a current income tax deduction. With the higher charitable contribution limits in 2020, this is a great tool that allows the taxpayer to donate multiple years’ worth of gifts in one year (bunching gifts), while being able to control the future distribution of funds. This strategy can also increase itemized deductions over the standard deduction, allowing taxpayers to itemize for the tax year ($24,800 for married filing jointly and $12,400 for single filers).
  • Consider gifting appreciated securities to avoid potential capital gains tax. Be aware that if donating securities, it could take custodians up to two weeks to process, and therefore, should be initiated by 12/15/2020 to ensure it will qualify for a 2020 deduction.


Estate and Gift Taxes

  • The maximum estate tax rate is 40% and the estate tax exemption is $11.58 million in 2020.
  • Be aware that the annual federal gift tax exclusion allows the taxpayer to give away up to $15,000 in 2020 to as many people as the taxpayer wishes without those gifts counting against the lifetime estate tax exemption.
  • Direct tuition and medical expense payments made on behalf of another person do not count against the $15,000 gift tax exclusion.
  • Consider wealth transfer strategies to reduce the taxable estate and ensure that assets will be utilized according to the taxpayer’s wishes, both now and in the future. We recommend discussing estate planning with us and an estate attorney prior to year-end if interested in these strategies.
  • It is important to note that there are likely to be more changes around gift and estate tax laws post-election.


Other Considerations

  • The upcoming presidential election could have significant changes on current tax law. Areas that could be impacted are: tax rates, income ranges between tax brackets, mortgage deductions, and estate exemptions. SFMG will be monitoring these changes and update our clients as needed with any planning opportunities.
  • Check beneficiary designations on retirement accounts and life insurance policies, especially if there has been a major life change (marriage, divorce, death of spouse, new child, etc.).
  • Review the titling of assets to ensure they remain in alignment with the estate planning design and goals, as well as to reduce or avoid the cost of probate.


The purpose of the update is to share some of our current views and research. Although we make every effort to be accurate in our content, the data is derived from other sources and should be reviewed carefully. While we believe these sources to be reliable, we cannot guarantee their validity. SFMG is not a CPA firm and does not provide tax advice. Please contact your tax advisor for discussion regarding specific tax planning strategies.