2020 Tax Planning for Private Wealth, Closely Held Businesses, & Related Ventures

tax planning

2020 Tax Planning for Private Wealth, Closely Held Businesses, & Related Ventures

tax planning

Tax planning for year-end 2020 will occur under very unique circumstances. COVID-19 has had an economic impact on all walks of life and industry sectors, including private wealth and family-owned and closely-held businesses. Coupled with the uncertainty of what might happen in the upcoming national elections, tax planning presents significant challenges at this time. There’s a lot to consider in terms of tax implications and economic changes due to the pandemic. Here are some thoughts to consider.

Typically, taxpayers consider capital loss harvesting at year-end to offset capital gains. Realizing losses can allow you to reduce your taxable income. And, if you don’t have capital gains, you can still use capital losses to offset ordinary income by up to $3,000. However, at a time when capital gain rates might be higher in future years, waiting to take such losses might generate a greater tax benefit in the long run.

Oftentimes, basing your current year’s estimated income tax payments on prior year’s tax is a straightforward approach that provides a safe harbor to avoid underpayment penalties. But, as the results of the 2020 year come into clearer focus, and if your income in 2020 is expected to be significantly lower than it was in 2019, you could consider not being protected from penalties and scaling back on your final estimated tax payment in January. 

Retirement Planning

Converting a Traditional IRA to a Roth IRA generates taxable income in the year of the conversion. For those who have other deductible losses in 2020, a Roth IRA conversion might be something to consider, particularly at a time when tax rates might be lower than in future years. Such a conversion can impact many items in the calculation of tax, so running projections is very important before acting. 

The CARES Act suspended RMDs payable in 2020 from a defined contribution retirement plan, including a 401(k) plan, 403(b) plan, or an IRA. The waiver also applies to anyone who turned age 70½ in 2019 and would have been required to take their first RMD by April 1, 2020, under the law in effect before the enactment of the SECURE Act, which changed the age requirement to 72, effective in 2020. Eligibility has also been expanded to include taxpayers generally subject to the once-per-year rollover limitation and restrictions on rollovers for inherited IRAs.

Estate Planning

It’s imperative to review estate documents, such as wills, revocable trusts, powers of attorney, and health care proxies. Life insurance plan coverage should also be reviewed, and all designations, such as trustees or beneficiaries, should be reviewed for changes or additions. Inherited IRAs should be reviewed in connection with the rules under the SECURE Act, as a beneficiary payout may be beneficial.

It’s worth noting that the State of Maine has a temporary order in place, allowing for certain emergency measure remote notarizations performed by two-way audio-visual communication wherein the notary or at least one witness is an attorney licensed to practice law in the State of Maine. 

Gift Tax Planning 

For 2020, the annual federal gift tax exclusion remains at $15,000 per donee, and the lifetime unified gift and estate tax exemption is currently at $11.58 million per person. A married couple electing to split their gifts can double these amounts. Gifts are not required to be reported by recipients, with a few exceptions, and gifts between spouses are generally unlimited. Again, depending on the results of the election, the large lifetime exemption amount could be significantly decreased and there is even talk of the changes being made to how the annual exclusion works. Talk to your CPA, estate attorney, and financial advisors about your circumstances. Making gifts before some of these changes might actually come to pass is something to be considered.

Contact ARB

ARB’s Private Client and Closely Held Business Service Groups provide families and their businesses with tax planning, compliance, and business advisory services aimed to maximize profit and reduce risk. Contact us today to discuss your 2020 tax planning strategy. 


Check out these additional resources:

ARB’s COVID-19 Financial Resource and Tax Center

The CARES Act: A Closer Look at Certain Provisions for Businesses 

Tax Planning for 2020, a Pandemic Year


by Dan Doiron, CPA, CVA