Smart Tax Moves During the Pandemic

Who would ever have foreseen a time when petroleum companies would pay you to take their oil? This phenomena underscores the concept that within every problem there is opportunity. Here are some tax strategies to think about during the coronavirus pandemic. Look into Roth rollovers If you have high balances in tax-deferred retirement accounts, consider rolling them into tax-free Roth accounts. Since you have to pay tax on the funds you convert, the lower value of the accounts means less tax is due. Plus if your income is lower, the tax hit will also be lower. The good news here is that growth in these funds when the economy recovers will now be tax-free! Consider removing a dependent Stimulus payments help most families with kids, except if they are over age 16. By removing them as a dependent and then filing their own tax return, they may be eligible for a $1,200 stimulus payment from the federal government. Capture capital losses, then reinvest Have a stock you like long-term, but it took a hit? Consider selling it, then repurchasing after 30 days. This will avoid the wash sale rules in the tax code. This technique can lower your cost and it can also be used to offset other investments you sell at a gain. Time to buy or sell? The value of real property of all kinds will be moving. Some will move up, some down. So now is a time to think about buying or selling. If you currently own property, don’t forget to look into the like-kind exchange rules to help defer any tax bite.

Leverage penalty-free withdrawals You can now take up to $100,000 out of a retirement account and avoid the 10% early withdrawal penalty. Even better, the income tax on these withdrawals can be paid over three years and you can always repay the money over that same time period. There may be planning opportunities around this added flexibility, but only if you review your options and correctly use the funds. It is more important than ever to keep up with rule changes and be on the lookout for tax planning opportunities. Contact us if you wish to discuss your options.