Financial Matters

Year-End Tax Planning Strategies

At Schultz Financial Group (SFG), we view wealth differently through our Four Capital approach. Our team works with you to build your wealth across Four Capitals – Financial Matters, Physical Well-being, Intellectual Engagement, and Psychological Space. This article focuses on an important aspect of Financial Matters: Year-end tax planning.  Year-end tax planning plays a crucial role in the financial planning process so we reached out to some of our third-party CPA resources to discuss year-end tax planning strategies. 

At Schultz Financial Group, our clients typically have multiple advisors whether it be for legal, estate planning, insurance, real estate, and/or tax matters. We serve as their “orchestra leader” to connect those other advisors together so they all work in harmony to help our clients achieve their goals. One example of this is how SFG collaborates with clients and their tax professionals to identify and execute appropriate year-end tax strategies. Tax strategies vary and are always specific to the client and their unique circumstances. 2020 presents us with a few unique year-end tax planning opportunities. To discuss year-end strategies further, we reached out to Pfrommer & McCune Ltd. and Holthouse, Carlin and Van Trigt, LLP for an interview. 

From Pfrommer & McCune Ltd., an accounting firm in Reno, NV, we talked to shareholders and CPAs Tom Rafferty and Jason Oetjen. As a boutique firm, the team at Pfrommer & McCune have had the opportunity to develop close relationships and personalized tax planning services to best meet each client’s unique needs. 

We also spoke with Cathy Kleineahlbrandt, CPA from Holthouse, Carlin and Van Trigt, LLP (HCVT). HCVT is headquartered in West Los Angeles and has additional offices across California, Utah, Texas, and Arizona. They use a hands-on approach and specialized teams to help cater to a wide variety of client’s tax needs.  

Consider Net Worth

When delving into year-end tax planning strategies, Rafferty and Oetjen like to begin by considering the make-up of a client’s net worth. “We’re going to have different planning structures if they’re a business owner or if they’re a retired investor,” Oetjen says. After considering the client’s net worth, Kleineahlbrandt likes to look at what tax bracket her clients are in and consider whether delaying or advancing income makes sense. She also considers significant itemized deductions, such as medical expenses and charitable gifts. Both firms also take into consideration the client’s changing life circumstances. 

Capital Gains and Loss Harvesting

The first tax strategy discussed was capital gain and loss harvesting. Taxpayers may consider harvesting losses to offset any capital gains that may have been recognized earlier this year. Additionally, capital gain harvesting may make sense for taxpayers with investments that have a low cost basis and want to utilize the current capital gains rates. According to Kleineahlbrandt, “Long-term capital gains rates are lower than most marginal income tax brackets and there is potential that these rates will go up.” Kleineahlbrandt handles capital gain and loss harvesting on a case-by-case basis and considers what assets the clients have and what their long-term plan is. Since there are many variables that affect taxes, the client’s whole picture must be considered. “There’s no cookie-cutter answer anymore in my opinion,” Kleineahlbrandt said. For both firms, harvesting gains or losses will be based on client preferences, assets, and what they think will happen in the future. 

Income Planning

Rafferty discussed income planning for business owners. Based on a client’s whole tax picture, the client may want to evaluate the timing of income for the best tax benefit. Itemized deductions, such as the deduction for state and local taxes, also came up. Some clients may consider pushing property tax payments into the following year if allowed. “It’s individually specific…and it’s individually driven based on that client’s [circumstances and outlook],” he said. Two individuals could have the same exact tax scenario and end up with two different approaches to year-end planning.

Charitable Gifting Strategies

Both firms discussed charitable gifting strategies. Under the CARES Act, taxpayers may offset up to 100% of their Adjusted Gross Income with qualifying charitable donations. Many of the clients at Pfrommer & McCune donate because they like to give back – not for the tax benefit. Rafferty and Oetjen suggested bunching charitable donations this year since future itemized deduction rules are uncertain. Kleineahlbrandt agrees with increasing current-year contributions. She suggested the option of gifting to a Donor-Advised Fund to recognize the charitable donation this year and disperse donations out in future years. This strategy also helps reduce a taxpayer’s overall estate for estate planning purposes. 

Required Minimum Distributions

SFG also inquired about strategies for handling a client’s Required Minimum Distribution (RMD).  For 2020, RMDs are not required and have been waived under the CARES Act. This has been a topic of interest for Pfrommer and McCune clients. “RMDs and Medicare premiums are what people really pay attention to,” Oetjen said. Rafferty and Oetjen noted that most of their clients decided to forego an IRA distribution this year. They suggested their clients not take their RMD unless it was needed for cash flow. With the RMD waiver in effect, taxpayers may also consider a Roth conversion this year. “It’s all about maximizing the tax benefit in this odd and very bizarre year,” Rafferty said. 

Like Rafferty and Oetjen, Kleineahlbrandt’s 2020 strategy also includes clients deferring their RMD if they do not need the income. Deferring a Required Minimum Distribution allows those funds to stay in the account and continue to grow on a tax-deferred basis for another year. If clients would like to reduce the value of their IRA to subsequently reduce the amount of future RMDs, they may consider Qualified Charitable Distributions (QCDs)

How PPP Loans May Impact Taxes

Clients at both firms have inquired about how PPP loans will affect their taxes. There is uncertainty around the tax treatment of these loans and the loan forgiveness. Tax preparers are waiting for guidance on how to treat the loan and usually deductible expenses. Rafferty and Oetjen treated the expenses as non-deductible and advised clients to pay taxes with their request for an extension – hoping for clarity on the rules in the near future. They hope that the expenses paid with loan proceeds will be deemed deductible and that clients may receive a tax refund. 

Kleineahlbrandt has advised clients to hold off filing for PPP loan forgiveness since the rules and regulations keep changing. For now, HCVT is booking the loans with the knowledge they currently have. Clients who received a PPP loan may be unable to deduct the expenses, therefore a tax liability is created and the loan has less of a benefit than originally intended. Loan forgiveness has been promised, but whether or not there will be associated taxable income is still uncertain. 

Changing Times

Both HCVT and Pfrommer & McCune have had to consider the current political climate and potential tax law changes that will affect high-net-worth clients given the outcome of this year’s election. Tax planning with consideration of President-elect Joe Biden’s plan in mind is a bridge they will have to cross eventually, but for now, everything remains uncertain. It is likely that Biden’s proposed changes to income and estate tax laws will evolve and change over time. “We have to plan for what we know versus what we think is going to happen,” Oetjen said. 

For now, year-end tax planning strategies will utilize the knowledge we have today. Current laws, potential changes, and – most importantly – the client’s best interest should all be considered. At SFG, we emphasize that tax planning should be a coordinated effort between the client and the client’s wealth and tax advisors. If you have any questions or need additional resources, please feel free to contact us

 

Schultz Financial Group Inc. (SFG) is a wealth management firm located in Reno, NV. Our approach to wealth management is different from many other wealth managers, financial advisors, and financial planners. Our team of fee-only fiduciaries strives to help our clients build their wealth across four capitals: Financial Matters, Physical Well-being, Psychological Space, and Intellectual Engagement. We provide family office and wealth management services to clients located in Nevada, California, and other states. If you’d like more information, please check out our website or reach out to us via our contact page.

  • Important Disclosure Information: The information contained within this blog is for informational purposes only and is not intended to provide specific advice or recommendations.  If third party products or services are referenced in the above blog post, then Schultz Financial Group is providing that information for informational purposes only and is not recommending or endorsing any third party products or services. Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Schultz Financial Group Incorporated), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Schultz Financial Group Incorporated. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Schultz Financial Group Incorporated is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Schultz Financial Group Incorporated’s current written disclosure statement discussing our advisory services and fees is available for review upon request. Please Note: Schultz Financial Group Incorporated does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Schultz Financial Group Incorporated’s web site or incorporated herein, and takes no responsibility therefore. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

  • More Insights from SFG