With 2020 coming to an end, we thought it would be a good time to remind everyone of a few tax planning strategies that can be easily overlooked:

1. Maximize your 401(K) or other employer plan contributions – Saving funds on a pre-tax basis in a retirement account allows them to grow tax-deferred until they are withdrawn in retirement.
2. Contribute to your Health Savings Account (HSA) – An HSA is an often overlooked savings vehicle that allows individuals covered by high-deductible health insurance plans to save money on a pre-tax basis. The funds then grow tax-deferred and if used for medical expenses can be withdrawn tax-free. These are sometimes called the triple tax advantages of an HSA.
3. Get going on 529 contributions – If you have children (or grandchildren, nieces, nephews, or anyone that may attend school in the future), a 529 may be the right savings vehicle for you. The tax deductibility of these contributions depends on your state of residence, and any contributions grow tax-free so long as they are used for qualified education expenses.
4. Contribute to a cause you care about – If you don’t have a charitable organization that you want to support directly in 2020, you can open a Donor Advised Fund to make the charitable contribution this year, allowing you to gift to your favorite charitable organization later. You receive the tax deduction in the year of contribution to the Donor Fund, and this also allows your funds to stay invested, and potentially grow, so that you can give away greater amounts in the future.
5. Think about financial gifts to individuals – While gifts to individuals are not tax deductible, they are a great way to lower your overall estate and reduce the amount that is potentially subject to estate taxes in the future. Cumulative gifts to an individual up to $15,000 [$30,000 for a married couple filing jointly in 2020] are under the annual gift exclusion and do not require a gift tax return to be filed. If you give more than $15,000 to one person, you may have to file a gift tax return and would encourage you to consult with your tax professional.

For some individuals it makes sense to accelerate their tax deductions in 2020, and for others it may make sense to delay their deductions until 2021. One of the things we do at Hill Investment Group is work with our clients’ clients’ CPAs and estate attorneys to ensure they are maximizing not only their portfolio with us, but their complete financial picture. Feel free to give us a call to discuss.

You know all those tax season emails you get from Charles Schwab, informing you that your Form 1099s are ready to download and share with your tax professionals?

Hill Investment Group clients can largely disregard those notices, because we take care of this busy-work for them. We aggregate the 1099s for the accounts we manage for them, and send the documents to those who need them, safely, securely and without our clients having to lift a finger. (Unless you count that single click to delete the email notifications.)

This is just one way we strive to simplify our clients’ busy lives, so they can focus on the things that are important to them.

For the final post in our tax management series, we’ll take a look at asset location. Everybody knows the three rules of real estate, but most don’t know that the same rule also applies to investment portfolio construction.

Asset location is the practice of positioning tax-inefficient assets in tax-advantaged accounts. For example, fixed income and REITs should first be held in tax-deferred accounts like an IRA, 401(k), or 403(b) while tax-free municipal bonds and equities should be positioned in taxable accounts.

A recent study by Vanguard estimated that professional advisors can add up to .75% annually to investment returns by utilizing proper asset location in client accounts. It is all too frequent that we find new clients coming on board with poor use of asset location, but with a few simple tweaks we can align your investments to maximize your after-tax return.