• Natalie C. Papagni, CPA

2020 Taxes | Preparing for Year-end Results

In 2020 year-end tax strategy and planning is more complex then ever. Why? Most if not all individuals have leveraged this unprecedented year to re-assess personal and professional priorities, and have taken initiative on a multitude of personal lifestyle and professional options with significant tax consequences that were not planned for or anticipated at the end of 2019. For example, in 2020 many have (or are in process of):

1) adjusted to a significant upward or downward shift in household income

2) executed a career change

2) relocated out-of-state

3) worked remotely across California's borders

4) bought or sold a home or residential rental property

5) launched a primary livelihood or side business venture

With year-end just weeks away there is no valid reason to accept the risk of an expensive year-end tax surprise.

Closing out the year with solid 2020 tax projections modeling the impact of 2020 financial decisions and events incorporating still available year-end financial moves and a recognition of expiring tax laws is an intelligent exercise well worth the modest time investment. Why? Capitalizing on year-end tax moves available to you that you have not yet considered may result in an effective tax rate, and $ 10,000 or more in tax savings.

This weekend, ask yourself the following questions:

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  1. Have you projected 2020 Federal and State tax cash outflows and effective tax rates factoring in all relevant 2020 events and decisions based on your unique financial, tax and household structures, and comfortable with the results?

  2. If no, why?

  3. If you have solid projections in place, do you feel the 2020 effective tax rates you are on-target to achieve are competitive with those achieved with individuals and peers at your level with similar financial, tax and household structures and lifestyle objectives?

  4. If yes, how did you arrive at this conclusion?

  5. Are you aware of any planned for tax provisions relevant to you expiring in 2020?

  6. In 2020, have you worked remotely outside of California's borders during the pandemic while maintaining California residency status (or planning to do so in 2021) and aware how state taxes remote workers, each state's tax filing requirements, and the risk of non-compliance?

  7. If you have a substantial concentrated stock position from RSUs/GSUs have you explored IRS-approved strategies you may qualify that may be available to diversify the position and defer capital gains?​

  8. If you have been fortunate enough to have significant incentive income from the RSU / GSU and bonus components of your compensation package, have you explored potential opportunities to drive the unplanned for tax consequences from this W-2 income down?

  9. The tax implications of major financial decisions are often broad. If a financial, real estate or real estate adviser recommends a transaction thought to produce a financial benefit, how do you intelligently assess the impact of decision execution on your bottom line 2020 and 2021 Federal and State tax positions – factoring in the indirect impact on items such as income phase-outs and limits, state itemized deduction phase-outs, NIIT, AMT, etc. and your specific financial, tax and household structures?

  10. In 2020, did you relocate from California or evaluating relocating out-of-state in 2021? If yes, are you aware of California residency and part-time residence tax laws, and the "tax traps" that many well-meaning individuals fall into that classify them as California residents for tax purposes after their move, and the penalties for non-compliance?

  11. If a member of your household voluntarily changed careers in 2020 or was unexpectedly laid-off during the pandemic do you have solid full-year 2020 projections modelling the impact on 2020 taxes vs 2019?

  12. If you own existing residential real estate rental property or purchased a new rental property, or a member of your household is an owner, member or partner in a business are you confident you are managing the properties or and/or entities to maximize tax benefits in light of COVID-19 financial events and legislation?

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If you aren't comfortable with, uncertain about and don't feel in full, proactive control of the tax position you are on-track to achieve, we can help. We’ll invest the time to understand your personal situation, prioritized interests and concerns, provide professional insight and get your questions answered.

Give us a call or reserve a time for us to talk on my calendar here.

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Cobalt PacWest Advisors | CPAs

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650.930.9562

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www.cobaltpacwestcpas.com


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