December Newsletter – Giving Thanks, Double Dip Unlikely

Give Thanks!  The US economy continues to heal.  Payrolls keep growing, unemployment claims – though still elevated – are shrinking, key measures of the manufacturing and service sectors remain well into positive territory, and, as this week should show, both retail sales and industrial production remain on an upward trajectory.

While some investors are concerned about the near-term outlook for the economy given the recent increase in cases of COVID-19, we have yet to see signs of a double-dip recession.  Yes, some locations have begun imposing new limits on economic activity, and others may follow.  But businesses have come a long way, learning how to adapt and move forward from the mid-March environment, back when dealing with COVID-19 was brand new.

Think about businesses built around people commuting to work or leaving the office and going out to lunch; those operations have already shrunk substantially, putting another decline of that magnitude virtually out of the picture.  Meanwhile, consumers have shifted their spending, generating jobs elsewhere.  For example, home improvements are on track to hit a calendar-year record high in 2020.  Housing starts will be the highest for any year since the crash in housing more than a decade ago. Warehousing & storage jobs are at a record high, as are courier & messenger jobs.

We don’t have the data yet, but migration between states and cities appears to have picked up substantially in 2020, as people leave areas that have experienced either excessive violence or draconian pandemic-related lockdowns.  This is just another piece of evidence that businesses and individuals have found ways to continue being productive in the face of unprecedented events.  For this, and other reasons, we don’t see a double-dip recession.

The resilience of the economy and corporations has rarely been tested as it was this year.  This experience, combined with recent announcements about vaccines and therapies, will lead to further economic growth.  When a business had no idea how long it would be before a vaccine for COVID-19 was available, it made sense to postpone some investments indefinitely.  But when the distribution of an effective vaccine looks like it’s around the corner, they can begin to take action on long-term plans even before the economy is fully healed.  Much of the uncertainty – be it about vaccines, the Supreme Court, or the elections – has now more or less passed.

Some uncertainty remains, it’s never fully gone, but when we compare the unknowns of today to that of just seven months ago, the risk to remaining invested in great companies has substantially declined.  Give thanks for progress. A double-dip, while always possible, is unlikely.


Your Year-End Tax Checklist, Plus a Few Extras for 2020


A lot of us have been in the attic lately, putting away the ghosts and skeletons from Halloween and dusting off the holiday decorations. While you are up there, can you find your year-end tax checklist?

2020 has been a year unlike any other. For many, the summer vacation was either canceled or truncated. Our eating-out bill went down while our staying-in bill (streaming subscriptions, house repairs, toilet paper and food delivery) has gone up. The new accessory expense, the mask, has a whole cottage industry built around it. Add these incidentals to the seismic economic shifts in Washington, and thanks to new legislation, we find our end-of-the-year checklist may need not just a dusting off, but a serious revision.


Let’s look at some year-end tax planning checklist items for 2020:

Roth Conversion Cutoff

The Roth conversion is a standard financial maneuver that can help you save big in taxes over the long run. Put simply, your IRA contributions would be post-tax rather than pre-tax under a Roth, and thus you have control over how much tax is paid now versus the future. The conversion process from a traditional IRA to a Roth is fairly simple, but can only be done once a year, hence its presence on your checklist. Make sure you have the capital free to do a conversion, and then get yourself into tax-free territory.


Itemizing Versus Minimum Standard Deduction

One of the most universally significant changes to taxes after the Tax Cuts and Jobs Act is the change in minimum standard deduction. The ceilings on these went up dramatically, now sitting at $12,400 for single taxpayers ($24,800 for married, filing jointly). These changes have converted many former itemizers into standard deduction recipients, which means a change in your tax planning strategy. Charitable giving, medical expenses, home mortgage interest and other items will have to be accounted for if you itemize, or conversely, your tax planning will be simplified.


Charitable Gifts

Charitable giving is another standard tax efficiency move, especially helpful if it involves giving you’re already doing. Tithing regularly to a local congregation? Giving monthly gifts to your favorite non-profit? All of this can help to reduce your tax footprint. But this conversation dovetails with the changes in the minimum standard deduction mentioned above. Whether you itemized or take the standard deduction will change the way you give, and the way you plan your taxes.

Bunching or bundling contributions can be a way to bring up your itemized deductions. Doubling or tripling your contributions one year may put you in a better place taxwise rather than stretching the contributions over that time. Again, this is something to have in place before the year’s end.


Check your Maximums

Have you maxed out your annual accounts? Just a few for 2020:

  • 401(k) – $19,500 ($26,000 if you’re age 50 or older)
  • Health Savings Account (HSA) – $7,100 families ($1,000 catch-up contribution if you’re age 55 or older)
  • IRA (Roth or Traditional) – $6,000 ($7,000 if you’re age 50 or older)

Make sure you’re reaching your goals on these accounts and others, especially if you have an employer match on your 401(k). Be mindful of the tax implications of these accounts, and take full advantage of those treatments by beating the deadlines. Again, tax crunch time is a few months away, but now is the time to get these important funds in place.


New Coronavirus-related Distribution Exception

The CARES Act also allows for an exception this year for families directly affected by COVID-19. If you or a family were diagnosed, or if you experienced direct financial consequences from the virus (layoff, furlough, etc.), then you may qualify. Under this exception, you can take up to $100,000 from your IRA to help with expenses. You won’t incur the 10% penalty for distributions taken before age 59.5. This distribution will automatically be spread over the next three years from a tax perspective, allowing you to use funds for immediate needs while mitigating the tax hit.


Time is Even More of the Essence

If it’s possible, time is even more of the essence for year-end tax wrap up in 2020. Yearly deadlines are coming up and temporary deadlines from legislation this year are upon us as well. Whatever Washington is bringing our way, we can take advantage of tax-planning strategies now.

Even in this extraordinary year, the rush of the holidays will leave us distracted and the calendar will change before we know it. If you have any questions, please get in touch with us for one last 2020 check-in to make sure you’re taking advantage of every opportunity.

In light of these changes and this turbulent year, your advisor team acquired a new tax-planning software to help us plan more accurately and efficiently. We can scan in your recent tax return and put together a tailored plan for your needs with tax-saving suggestions. Your end-of-the-year check-in would be a perfect time to go through this process.


Did You Know:


An estimated 159.8 million Americans voted in the 2020 presidential race, representing 66.8% of the 239.2 million “voting-eligible” Americans.  The 159.8 million voters are an all-time US record and the 66.8% is the highest “percentage turnout” in 120 years (source: NBC News).


In the 6 months from 2/29/20 to 8/31/20, 163,735 US businesses have closed their doors, including 97,966 businesses (60%) that are likely closed for good (Source: Yelp Economic Average).


“It’s not how much we give but how much love we put into giving.” – Mother Theresa

“Our human compassion binds us the one to the other – not in pity or patronizingly, but as human beings who have learnt how to turn our common suffering into hope for the future.” – Nelson Mandela



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