Personal Finance

Not too early for an overall review of 2020 tax strategy

Think it’s too early to think about taxes? Not at all. It’s best to start financial planning for 2020 now.
Think it’s too early to think about taxes? Not at all. It’s best to start financial planning for 2020 now. File

School is back in session and summer will soon be behind us. Who hasn’t heard the phrase “it’s just flown by” recently?

With the end of the year approachin, this is a good time to review finances and plan for 2020.

Year-end tax considerations

We are now in the second year of the new Tax Cuts and Jobs Act signed into law by President Donald Trump late in 2017. The new tax laws presented a significant change for many, as people who were itemizing deductions in the past are now better off taking the standard deduction.

In addition, tax rates were reduced and some exemptions were lost.

Taxpayers may want to consider bundling charitable and other deductions to take full advantage of current tax laws. In light of the changes, an overall review of tax strategy would be wise.

With double-digit returns in the stock market so far this year and abnormally high bond market returns, it will be wise to understand and plan for capital gains for 2019. In some cases, investors can estimate capital gains for the year and plan accordingly.

Mutual fund companies will tell fund holders what they plan to distribute in capital gains to shareholders and when. It’s possible for an investor to avoid these gains in some circumstances. It’s also a good idea to review investment portfolios and determine if there are any capital losses which can be “harvested” to offset capital gains from the portfolio.

To lower taxable income, be sure to maximize contributions to 401K and other retirement accounts. While 2019 IRA and Roth IRA contributions can be made until April of 2020, employer-sponsored retirement plans typically have a contribution deadline of the end of the calendar year.

Deposits to Health Savings Accounts and 529 Savings Plans can be valuable ways to save for health care and education expenses while reducing current income but their contribution deadlines are Dec. 31. Health savings accounts can provide a deduction up front, grow tax-deferred and be withdrawn without taxes for health expenses, making them a great source to pay increasing health costs.

Your personal financial statements

The end of each year is a good time to review your annual budget and net worth statements.

Review the current year’s income and expenses and evaluate them.

Are you saving enough? How much of your income is spent servicing debt? How do your income and expenses compare with the prior year? Create a budget for the coming year that will help you accomplish your overall financial goals.

Reviewing your net worth on an annual basis is good idea. Is it higher or lower than the prior year? And why? The goal of a financial plan is to increase net worth. Any increase in your assets or reduction in your liabilities will accomplish this result.

Review your investment portfolio

Stock and bond markets have been very volatile lately and interest rates are near historic lows. The U.S. economy is experiencing a lengthy expansion and next year is an election year. It’s wise to review your investment portfolio and determine if any rebalancing is appropriate.

There are other financial considerations not discussed here.

For example, it is wise to review your estate plan each year and determine if you have the appropriate legal documents in place. An annual review of your insurance policies is necessary to ensure you have the proper coverage.

There are many other items to consider and it’s best to have a comprehensive financial plan in place.

Chris Walden, CFP, is a Certified Financial Planner professional and a member of the Financial Planning Association of Greater Kansas City. He is an adviser with Heartland Capital Advisors, LC, a registered investment adviser in Independence.