Skip to main content

MASON & ASSOCIATES, LLC

2020 Taxes: Read This Before You File

February 3, 2021

Dear Client,

1099’s, W-2’s, and other tax documents continue to arrive.  Our goal is to minimize the stress associated with tax season. The tax strategies implemented by Mason & Associates are well thought out and designed to help clients achieve specific financial planning goals.  At times, these strategies involve a significant repositioning of assets and are designed to either increase or decrease taxable income.  The strategies implemented in 2020 should not result in unwanted repercussions. The following information will assist you in preparing for tax season and provide guidance on how to interact with your CPA or tax professional. Please contact us if you or your tax professional have questions on the strategies that were implemented in 2020.

Do not Rush to File Tax Returns

We recommend filing federal and state returns after February 15th.  Although most tax documents will be received by January 31, certain documents are commonly corrected or amended after January 31st.  1099’s associated with non-retirement accounts (Individual, Joint, and Trust) are commonly amended in February.  In addition, Schedule K-1’s are typically issued after March 15th, and sometimes they are issued as late as September, 15th.  If your investments, rental property, or trust generates a Schedule   K-1, please make sure to delay filing until receipt of this document.

RMD General Recommendation

Taxpayers with qualified retirement accounts and IRAs have an RMD this year if they had one in 2019 or if they attain age 72 in 2021. Our current recommendation is to delay taking an RMD distribution until later in the year. It’s possible that the RMD requirement may be waived in response to the continued efforts to recover from the COVID-19 Pandemic.  Assuming RMDs are not waived, our goal will be to have these satisfied by October 31 through a normal distribution or qualified charitable distribution.

Deadline to contribute to Traditional or Roth IRA for 2020.

The deadline for contributions is the due date of the tax return, April 15th, for IRAs and Roth IRAs. Our goal is to have all contributions completed by March 31. We encourage ACH or electronic contributions over physical checks.

TSP, 401(k) and IRA Rollovers in 2020

Transfers from an employer retirement plan (TSP, 401k, 403b) will generate a 1099-R that documents the transfer.  Box 7 of the 1099-R should have code “G” which indicates a non-taxable institution to institution rollover.  The majority of the rollovers and transfers executed by Mason & Associates are direct transfers or rollovers. However, a handful of indirect transfers and rollovers are processed annually. 1099’s associated with indirect transfers will report the income as taxable and it is the responsibility of the taxpayer and tax preparer to report the transfer as a nontaxable transfer.

IRA to Roth IRA Conversion (To Include 2020 RMD to Roth IRA)

If we converted some or all of your IRA to Roth IRA in 2020, you will receive a 1099-R reporting the distribution as taxable income, which is correct.  However, you must also let your tax preparer know how much of the distribution was a Roth IRA Conversion to ensure it is reported properly, which will require filing a Form 8606 with your tax return.  In addition, ensure that the Roth Conversion is reported in the quarter it occurred so that the income lines up with estimated taxes paid, if applicable.  

Employer Retirement Plan, IRA, and HSA Contribution Limits

  • Thrift Savings Plan
    • $19,500 (younger than age 50)
    • $26,000 (Age 50 or older)
  • 401(k), 403(b), and most 457’s
    • $19,500 (younger than age 50)
    • $26,000 (Age 50 or older)
  • IRA contribution limits remain unchanged for tax year 2021.
    • $6,000 if under age 50
    • $7,000 if age 50 or older
  • Health Savings Account
    • $3,600 single
    • $7,200 family
    • $1,000 catch up contribution per person age 55 or older
      • Each person 55 or older must have their own account to contribute the catch up contribution. The $7,200 family limit can be contributed to one or account or split.

Reminders

  1. Virginia Long term care premium deduction
    1. If outside of Virginia, check your state for a similar deduction
  2. Virginia 529 deduction
    1. If outside of Virginia, check your state for a similar deduction
  3. Your qualified charitable distribution is NOT taxable income. This must be communicated and reported correctly to receive the benefit of this strategy.
  4. “Backdoor Roth Conversions” Initiated by us are typically not taxable, however ensure your tax preparer is aware of the conversion and strategy.
  5. CSRS / CSRS offset VCP to Roth IRA is not a taxable event.
  6. Include your estimated payments when preparing your return
  7. Contributions to a Donor Advised Fund
    1. Non cash contributions, such as a stock or mutual fund may require Form 8283
    2. If we assisted with the transfer of assets to a donor advised fund, we can provide the Substantiation Letter to you and your tax preparer. 
  8. Irrevocable Trusts and the 65 day election- please contact us if you are involved with an irrevocable trust.

Strategic Planning Meetings (April, May, and June)

  1. Please upload the complete federal and state tax returns to our ShareFile