ChooseFI | Financial Independence Podcast 274 | Year-End Tax Planning Strategies with Sean Mullaney
2020 brought lower incomes for millions — but that also created a rare window for tax-savvy Roth conversions at historically low rates. Brad and Jonathan team up with tax expert Sean Mulaney to break down the year-end tax strategies that can save you thousands, from Roth conversions and tax-loss harvesting to strategic charitable giving and small business expense timing. With key deadlines looming, this episode walks through the specific moves you need to make before December 31st to optimize your tax efficiency and set yourself up for long-term wealth building.
[00:03:21] Importance of Roth Conversions
- 2020 presents a unique opportunity for Roth conversions due to potentially lower income levels for many listeners.
- Roth conversions must be executed within 2020 to take advantage of lower tax brackets.
- Locking in a 10% federal tax on a Roth conversion is effective planning. [00:06:09]
[00:10:06] Choosing to be Taxed Today
- Choose to be taxed in 2020 if your income may be higher later.
[00:13:18] Working with Financial Advisors
- Be proactive with trusted financial advisors regarding year-end deadlines.
[00:17:29] Charitable Contributions
- Charitable contributions must be completed by December 31st to count for this tax year.
- The $300 cash contribution deduction is available in 2020 without itemizing deductions.
[00:21:13] Small Business Expense Strategies
- For those on cash basis accounting, year-end payments can be strategically timed to optimize deductions.
[00:31:12] Tax Loss and Gain Harvesting
- Tax loss harvesting involves selling securities at a loss to offset capital gains.
- Reset your basis with tax gain harvesting to avoid capital gains taxes, especially useful if in a lower income tax bracket. [00:33:43]
[00:43:16] Required Minimum Distributions (RMDs)
- RMDs apply to retirement accounts at age 72 but were waived for 2020, providing planning flexibility.
[00:51:27] Final Thoughts on Long-term Tax Planning
- Long-term strategic tax planning is key to minimizing lifetime taxes. [00:51:42]
Action Items:
- Review your tax situation and aim to execute a Roth conversion before December 31.
- Plan charitable contributions ahead of the year-end to maximize deductions.
- Keep beneficiary designation forms updated for all your accounts.
- Explore tax loss harvesting strategies to offset capital gains.
- Assess small business expenses for timely deduction benefits.
Resources:
- Sean's blog on Tax and Financial Independence: fitaxguy.com
- Mulaney Financial Planning: mulaneyfinancial.com
▶ Listen Next: Ep. 275 — War Gaming Your Finances: Stress Testing Your Financial Plan | Essential Listening
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