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2020… What A Great Year!

2020… What A Great Year!

February 24, 2022

2020… What A Great Year!

By Peter T. Waldron

Managing Partner of Waldron Partners

“Time changes everything except something within us which is always surprised by change.” – Thomas Hardy

                As an eternal optimist, it is somewhat difficult to be faced with the facts of 2020. The catastrophic pandemic that has killed over 1,000,000 people worldwide has exacted a litany economic, political, and societal uncertainties. While I don’t want to discount the painful realities that many are experiencing, I do want to point out that the stock market has recovered, interest rates are historically low, and home prices are up. While this is great for our balance sheets, it doesn’t fully illustrate the amazing things that have happened this year. Many have taken a step back from their previously harried lives and course-corrected in the middle of the storm, which has led to deeper bonds with spouses, children, parents, friends, and neighbors. I believe these renewed bonds will carry us through the chaos of 2020. Oh, and our enduring hatred of paying taxes too. So here are the top ten items that I believe individuals and business owners should focus on when it comes to year-end tax planning:


  • Employee 401(k) Contributions: $19,500 (50 and older: $26,000) – Confirm that you will maximize your retirement contribution. Every dollar that you put into your 401(k) is a dollar that is not taxed. Your employer’s contributions are above and beyond these limits, so make sure your dollars are maxed out. Roth 401(k)s are a good idea for lower income earners and sometimes as you approach retirement.
  • Charitable Donations: 100% of adjusted gross income (AGI) for Cash Donations / 30% of AGI for Stock Donations – If you don’t itemize your deductions and instead use the standard deduction, your taxes will not be reduced by donations. However, if you itemize, you can take advantage of charitable deductions. Remember that the goal of donating is to help society in addition to reducing your tax bill, but you must give up something. If you don’t know what cause to support, use a donor-advised fund to begin funding future giving today.  
  • Health Savings Accounts (HSAs): $3,500 for Individual / $7,100 for Family – HSAs eliminate taxes on expenses like doctor office visits, prescriptions, and physical therapy, among other items. This type of account also allows you to accumulate and spend the money out of a pre-tax account.
  • Dependent Care Flexible Spending Accounts (FSAs): $5,000 – Similar to an HSA, an FSA lets you save on a pre-tax basis and spend those dollars on eligible dependent care expenses such as preschool, summer day camp, adult day care, and nursery school.
  • Tax Loss Harvesting: $3,000 to Unlimited – While this seems straightforward, many people miss the opportunity to save tax dollars because they are not mindful of their taxable investment accounts. At the bottom of the market in March of this year, you could have booked losses while remaining invested for the recovery. These realized losses are matched against unlimited gains and can be carried forward until they are exhausted. If you don’t have gains, you can use them to offset $3,000 of normal income.
  • Starting a Business: No Exact Benefit – Starting a small business provides many benefits, including the ability to write 0ff expenses like phones, cars, a home office space, computers, travel, and much more. It is important to note that the IRS does not consider a hobby to be a business; you will need to earn an income.  Remember: any income earned is taxable unless there are expenses to offset.

Business Owners:

  • Depreciation – If you purchased any assets this year, make sure to depreciate them on your tax return. This includes office furniture, equipment, computers, appliances, and automobiles. Review whether Section 179 and bonus depreciation apply to your purchase(s).
  • Cost Segregation – For investors in commercial and multi-unit properties, you can complete a cost segregation analysis to reestablish more favorable depreciation schedules for parts of your property. For example, some of your property’s elements (AC, flooring, etc.) have a depreciation schedule that is shorter (seven years) than the typical 27.5 or 39 years. You can move that tax benefit forward and potentially put cash back in your hands versus stretching the benefit over the next 39 years.
  • Amortization – The idea of buying someone else’s business might seem daunting; however, the government will give you a tax benefit of which most people aren’t aware: amortization. If you purchase someone’s business you can amortize the cost of the purchase over 15 years, which means that every year part of the purchase price is deducted from your tax bill.
  • General Deductions – While it is important to run a cash flow positive business, there is an adage that says: “in order to make money, you must spend money.” The MBA in me would pose a few questions: what is the cost of the capital? What will the return be on the spend? What is the breakeven analysis? All joking aside, bringing on a new employee can boost productivity, spending money on marketing this year might lead to growth next year, and developing your people (which costs money) can potentially help you best your competition.

While the tax environment is ever-changing, it is essential to keep up with opportunities to reduce your tax bill. This isn’t cheating the system; rather, it is about using the system how it was intended. Hopefully you can find a way to reduce your tax bill so you have some extra money this holiday season. On a final note, let’s all try to be truly present in the moments we have with our family as the troubles of the world can only be solved by our desire to protect the legacy of our family.

“Family is not an important thing. It's everything.” – Michael J. Fox



Peter T. Waldron: California Insurance License #0E47827

Peter T. Waldron is a registered representative of Lincoln Financial Advisors, a broker/dealer, member SIPC, and offers investment advisory services through Sagemark Consulting, a division of Lincoln Financial Advisors Corp., a registered investment advisor, Waldron Partners, 3201 Danville Blvd., Suite 190 PO Box 528, Alamo, CA 94507.  Waldron Partners is not an affiliate of Lincoln Financial Advisors. Insurance is offered through Lincoln Marketing and Insurance Agency, LLC and Lincoln Associates Insurance Agency, Inc. and other fine companies. This information should not be construed as legal or tax advice. You may want to consult a tax advisor regarding this information as it relates to your personal circumstances. The content of this material was provided to you by Lincoln Financial Advisors Corp. for its representatives and their clients.