By any measure, 2020 has been an interesting year. Tens of millions of Americans have faced unemployment, and millions of small businesses have had to scale back operations, or even worse, close permanently. And right when things start to feel like they’ll return to normal, something else happens.
Thankfully, with multiple COVID-19 vaccines in the works, there’s hope the load will lighten in the new year, which is fast approaching. While we prepare for a fresh start, here are six financial best practices for year-end 2020 and beyond, none of which require any heavy lifting.
- Give as you’re able, get a little back. What the 2017 Tax Cuts and Jobs Act (TCJA) took from charitable giving, this year’s CARES Act partially gave back – at least for 2020.
- A $300 “Gift”: Under the TCJA, it became much harder to realize itemized tax deductions beyond what the increased standard deductions already allow. But this year, the CARES Act lets you donate up to $300 to a qualified charity, and deduct it “above the line.” In other words, even if you’re taking a standard deduction, you can give a little extra, and receive an extra tax break back, without having to itemize your deductions.
- Giving Large: If you are itemizing deductions, the CARES Act also temporarily suspends the usual “60% of your AGI” limit on qualified cash contributions. The exception does NOT apply to Donor Advised Fund contributions, and has a few other restrictions. But if you’ve already been thinking about making a large donation to a favorite charity, 2020 might be an especially good year to do so – for all concerned.
- Revisit life’s risks. As the pandemic reminded us, life is full of surprises. That’s why it’s imperative to build wealth, and protect it against the inevitable unexpected. Is your current coverage still well-aligned with your potentially altered lifestyle? Perhaps you’re driving less, with lower coverage requirements. Or new health or career risks now warrant stronger disability insurance. Might it be time to consider long-term care or umbrella coverage? Bottom line, there’s no time like the present to prepare for your future greatest risks.
- Leverage lower tax rates. While it’s never a sure bet, Federal income tax rates seem more likely to rise than fall over the next little while. Even before this year’s massive relief spending, the TCJA’s reduced individual income tax rates were set to expire after 2025, reverting to their prior, higher