Date: November 23, 2020

8 Tax Deductions and Strategies Often Missed by Families and Business Owners

This time of year seems to fly by – there’s Thanksgiving, the holidays, and then, just like that, we’re in a new year. With everything going on, your taxes may be the last thing on your mind, but end-of-year tax planning should really be high on your priority list. Once the year is over, it’s over.

While many of us are welcoming 2021, and will gladly show this year the door, there are many tax reduction strategies that you can still implement before the year is over that can save you taxes.

Filing your taxes for 2020 could be even more complicated than usual, with the Coronavirus pandemic bringing new challenges. If you haven’t before, there’s not a better time than now to discuss your situation with a financial advisor. Remember, financial freedom isn’t just about how much you make, but how much you keep.

As we enter the final months of 2020, here are 8 forward-looking, multi-year tax strategies that can impact your bottom line; strategies that are often ignored, leaving money on the table:

1. Charitable Deductions

While most people are used to taking the charitable deduction, if you are giving cash, you may be missing out on other benefits. Discuss these alternatives with a financial advisor:

Giving Long-Term Appreciated Securities

When an appreciated asset is donated to charity, you can typically cut the IRS out of the capital gains you would have paid (there are rules to observe). The charity is the one selling the asset, and charities don’t pay capital gains.

Establishing a Donor Advised Fund (DAF)

A DAF is essentially an investment account for charity. Because you have earmarked this account for charity, you can receive all the tax benefits up front and can continue to invest that money. You can also donate the funds from the DAF any time you want. These can be very powerful to “lump” your charitable donations, so that your standard deduction does not eat away at your charitable deductions.

Qualified Charitable Distributions (QCDs)

A QCD can be a smart move for anyone 72-½ or older who needs to make a Required Minimum Distribution (RMD) from their retirement account. What often happens is this minimum withdrawal amount, which is required by most retirement plan account owners, can bump a retiree into a higher tax bracket and increase Medicare costs. Instead, what some retirees choose to do is donate an amount to charity. When done as a QCD, the money never hits your tax return, because the money is being sent directly from a retirement account to a qualified charity. This allows you to give to charity without the income ever showing up on your AGI.

The starting age for Required Minimum Distributions (RMDs) rose from 70-½ to 72, and the Coronavirus Aid, Relief and Economic Security (CARES) Act allows retirees to skip these distributions in 2020 without triggering a hefty penalty.

Donating Complex Assets

Complex assets are defined as assets that are somewhat illiquid and cannot be sold and converted to cash extremely quickly. This includes assets like artwork, non-traditional real estate and even more alternative assets like non-publicly traded stock, foreign investments and intellectual property. While these assets can be difficult to sell, they can still offer tremendous value to a charity – and your taxes. When you do donate complex assets through these channels, you may be able to avoid capital gains tax on gifts of appreciated assets.


Talk with us! Learn how Opus Wealth Management’s unique planning-intensive approach can help you minimize blind spots and achieve your financial goals.


2. Converting a Traditional IRA to a Roth IRA

An IRA conversion may be the most underused forward-looking tool there is. The “ghost of Christmas future” (i.e. that circumstances later in retirement will cause your tax rate to go up significantly) is ugly for a lot of couples.

When you convert a Traditional IRA to a Roth IRA, you will have to pay taxes on any money that you didn’t when the initial contribution was made. But this can convert to big savings in the future, since you won’t have to worry about taxes later on. This is especially helpful if you expect to be in a higher tax bracket in retirement. There are higher tax rates currently in the code, never mind the risk of them going higher due to our huge national deficit. All couples may be subject to the so-called “widow’s tax,” which is when a spouse dies, you will be filing as an individual and get to higher tax brackets practically twice as fast.

3. Qualified Business Income Deduction

Business owners: Smart tax planning for the Qualified Business Income Deduction (199a) if you are near thresholds to qualify is crucial. There are a lot of strategies to “work” the sometimes-complex formula to qualify for this deduction. Make sure you discuss your situation proactively with an advisor before year-end.

4. Bunching Deductions

While not a deduction per se, bunching your contributions can help you increase your total deductions. With a standard deduction at $24,800 for married couples and $12,400 for individuals, it’s often hard to get over the threshold. One strategy is to proactively “bunch” several discretionary deductions in the same year. For example, it is often possible to choose which year your real estate taxes, state taxes, mortgage expenses, medical expenses, student loans and charitable contributions fall into.

5. Deductions for Working from Home

In 2020, the working-from-home deduction will apply to a lot of people, many of whom have not used this perk before.

There are several elements to your new working situation that you may be able to write off, including:

  • Your home office space
  • Technology and office supplies
  • Your Internet, cell phone and utilities
  • Childcare

6. Building Assets in a Health Savings Account (HSA)

HSAs are the only triple tax-free account in the U.S. tax code. There is:

  • A deduction going in
  • Tax-deferred growth
  • Tax-free distributions (if qualified)

If you have any taxable savings, why use money from this account to pay medical bills? Instead, consider letting this triple tax-free account compound for you and your family for possibly decades – think of it as a super-charged Roth. Move your account to an investment firm where you can grow it over time.

Make sure to save your medical receipts over the years and you’ll likely have all you need to qualify for withdrawals.

7. Changes to a Trust

The Secure Act will no longer allow most beneficiaries who are not the surviving spouse to “stretch” out inherited IRA distributions over the beneficiary’s life when liquidating an inherited account. This can have severe repercussions on your children’s income taxes and can also affect the optimal language used in your trusts.

Ask your financial advisor to review your trust and determine if some of the language needs to be tweaked.

8. Change Owners to Build Cost Basis

There are many reasons to be careful about the titling of your assets. In some situations, you may want to keep an asset inside your estate until death to get a “step up in basis,” which eradicates the capital gains taxes your children would otherwise owe. If you have a sick spouse and live in a separate property state, you may want to put low basis assets in the sick spouse’s name. Lastly, you can gift assets to a parent to take advantage of their “step up in basis.” These strategies can save some families millions of dollars.

Talk to your financial advisor to see if this makes sense for you.

The Bottom Line

As you can see, there are a lot of proactive, forward-looking strategies available to help you save on taxes.

A few minutes of planning this holiday season can translate to some big savings!


Loic LeMener

Loic LeMener, CFA®, MBA, CFP®, is the founder of Opus Wealth Management.