6 Tax Saving Opportunities Opened Up By New Tax Rules

Nikulski Financial, Inc |

The Tax Cut and Jobs Act (TCJA) passed at the end of 2017 and SECURE (Setting

Every Community Up for Retirement Enhancement) Act passed at the end of 2019

radically changed your tax picture.1


Most Americans are going to pay less in taxes under the tax brackets, and few are going to use this great

opportunity to permanently lower the taxes they pay.

The multiple COVID-19 pandemic and relief acts also spurred new tax wrinkles you

should know about.


The 2017 rules are scheduled to expire in 2025 (if they do not disappear sooner

under a new administration), and most taxpayers will see a tax hike.2

To reduce the impact of the new tax laws on government revenue, the IRS changed

how it increases things like thresholds, deductions, and credits for inflation.3


It sounds like a minor procedural move, but it is a big deal. In plain English, this

change means that many taxpayers will creep into higher tax brackets as their

incomes brow because the tax brackets themselves will not increase as much as

they used to for inflation.


Bottom line: many taxpayers will pay more in taxes over the next few years due to

this hidden tax increase. It might be only a few hundred dollars every year, but over

time, even small tax increases add up! Unless you take steps now to reduce your

taxable income.


All 6 opportunities in this guide are actions you can take right now to potentially

lower your taxes this year and, in the years, to come. We strongly recommend that

you take this list, along with your tax return, to your CPA and financial adviser

(which may be us!) to see which tax reduction opportunities have opened for you.


1.Take the Standard Deduction Later

The new tax rules dearly doubled the standard deduction and did away with many

write-offs, removing the tax benefit of itemizing deductions for most taxpayers.4


However, an old accounting trick means you can still optimize your deductions

under the new rules by “bunching” itemized deductions in a single year to get over

the standard deduction threshold and then taking the standard deductions the

following year – potentially maximizing your tax savings multiple years in a row.


2.Pre-Pay Your Medical Expenses

Have major medical-related expenses coming up? You can potentially maximize the

tax deduction by pre-paying your out-of-pocket medical expenses for the year to

get above the standard deduction amount and meet the 7.5% AGI threshold (and

maybe even get a discount for paying up front). What kind of medical expenses

qualify? A surprising number, including unreimbursed doctor fees, long-0term care

premiums, certain Medicare plans, and some home modifications.5


3. Give Money to Your Favorite Charity Right from Your IRA (New SECURE Act


Even though the SECURE Act changed the age at which your RMDs must start from

70 ½ to 72, you still have the right to make Qualified Charitable Distributions

directly from your IRA to a qualifying charity once your 70 ½, allowing you to

exclude up to $100,000 from your gross income (with certain restrictions).6

Even though the CARES Act allowed RMDs to be skipped in 2020, you can still make a

QCD this year.


4. Lower Your Taxable Income with a Roth Conversion (But Do-Overs Are Done!)

A Roth conversion is a great way to permanently lower your taxable income in

retirement by converting tax-deferred assets into tax-free assets and paying taxes

on the conversion in an optimal tax year (like under today’s favorable tax brackets

or your retirement assets lost value this year). For example, if you are a married

couple filing joining and your household earned $250,000 in taxable income in

2019, your effective tax rate is 19.34%, while it was 23.09% under the old rules.7


Unless you expect your taxes to be lower in future years, now may be an ideal

opportunity for a Roth Conversion.


Under the old rules, you could choose to reverse a Roth conversion (called a

recharacterization) and eliminate the tax bill. That loophole is gone, meaning once

you convert that IRA to a Roth, you do not get a do-over.8


So you really must look at all the variables and pick the right time for the move. We can review your options

together and choose the optimal strategy for you.


5. Review How You Are Paying Your Investment Fees

Prior to the TCJA, you could write off some of the fees you pay for investment

management. The TCJA did away with that deduction, but there are still ways to pay

fees with pre-tax dollars, if they make sense considering your overall financial goals

and investment performance. That is why we run the numbers with clients to

potentially maximize the after-tax return on their investments – not just the market



6.Optimize Your Retirement Contributions

The TCJA and SECURE Act introduced many changes to tax rules. The 2020 CARES

Act also temporarily changed certain tax requirements, making tax planning even

more critical this year.


The most important step you can take right now to reduce your taxes this year may

be to review how and where you are making retirement contributions. Why?

Because you may be missing out on critical tax savings (and investment growth) if

you are not optimizing your contributions. Depending on how close you are to

retirement and your overall financial picture, you might be better off splitting

contributions between retirement accounts or even diverting your contributions

elsewhere to reduce debt (such as mortgage interest is no longer deductible). We

can run the numbers together if you would like a professional opinion.


Special COVID-19 Considerations That Could Affect You

1. Economic Stimulus check

If you did not get a check from the IRS yet and think you are owed, do not worry.

Since it is technically an advance refund of a 2020 tax credit, if eligible, you will

receive it after filing your 2020 taxes. Important!! You do not owe income taxes on

your stimulus payment, nor must you pay it back.9

2. Payroll Tax Holiday

In September, the IRS issued a payroll tax holiday, allowing employers to stop

withholding Social Security taxes until the end of 2020. Important! If your employer

paused your payroll taxes, you may get smaller paychecks in 2021 until the

deferred taxes are paid off.10

3. 529 Refunds

If you withdrew money from a 529 to pay for college expenses that were refunded,

you will want to return the money to the 529 as a “recontribution” within 60-days of

the refund so that it is not taxed or penalized as a non-qualified distribution. Too

late for that? You can also use the funds for other qualified educational expenses

(such as computers, internet, or student loans) within the same tax year.11

4. 401(k)/IRA Withdrawals

If you need to make COVID-related emergency withdrawals from your IRA or

workplace plan (we do not advocate this in most circumstances), do it before year-

end to avoid the 10% penalty that normally applies if you are under 59 ½. You will

be able to stretch out the income taxes on the withdrawal over the next three

years. Important!! Be sure to speak to your plan administrator soon to make sure

this distribution option is available to you.12


The TCJA and SECURE Act introduced many changes to tax rules. The 2020 CARES

Act also temporarily changed certain tax requirements, making tax planning even

more critical this year. We are financial planners who help clients use the new tax

rules to uncover opportunities, identify risks, and keep more of their money working

for them. We help our clients plan for future taxes and create a retirement income

plan to help minimize the taxes they will pay.

Everyone’s situation is different, and today’s tax and retirement environment is

extremely complex.


Should you have any questions or would like to discuss any of the topics introduced

above, please reach out to us!

Nikulski Financial, Inc


(563) 344-0118


Sources & Disclosures

1 https://taxfoundation.org/final-tax-cuts-and-jobs-act-details-analysis/ https://www.barrons.com/articles/secure-act-


2 https://taxfoundation.org/look-ahead-expiring-tax-provisions/

3 https://www.marketwatch.com/story/the-little-noticed-tax-change-that-could-affect-your-return-2018-03-19


4 https://taxfoundation.org/90-percent-taxpayers-projected-tcja-expanded-standard-deduction/

5 https://www.aarp.org/money/taxes/info-2018/medical-deductions-irs-fd.html

6 https://www.marketwatch.com/story/secure-act-includes-one-critical-tax-change-that-will-send-estate-planners-


7 https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2019

https://www.irs.gov/pub/irs-prior/i1040tt--2017. pdf

8 https://www.marketwatch.com/story/how-the-new-tax-law-creates-a-perfect-storm-for-roth-ira-conversions-2018-


9 https://www.marketwatch.com/story/do-i-have-to-pay-back-my-1200-stimulus-check-dont-fall-for-these-five-


10 https://www.shrm.org/resourcesandtools/hr-topics/compensation/pages/irs-guidance-workers-payroll-tax-


11 https://www.savingforcollege.com/article/can-i-recontribute-a-refund-to-my-529-plan



Nikulski Financial, Inc. is a registered investment adviser. Advisory services are only offered to clients or

prospective clients where Nikulski Financial, Inc. and its representatives are properly licensed or exempted. This

website is solely for informational purposes. No advice may be rendered by Nikulski Financial, Inc. unless a client

service agreement is in place with you.

Services are offered through Nikulski Financial, Inc., a registered investment adviser.

This message and any

attachments contain information which may be confidential and/or privileged and is intended for use only by the

addressee(s) named on this transmission. If you are not the intended recipient, or the employee or agent

responsible for delivering the message to the intended recipient, you are notified that any review, copying,

distribution or use of this transmission is strictly prohibited. If you have received this transmission in error, please

(i) notify the sender immediately by e-mail or by telephone and (ii) destroy all copies of this message.

If you do not

wish to receive marketing emails from this sender, please send an email to

info@nikulskifinancial.com or a postcard

to 3289 Utica Ridge Rd, Bettendorf, IA 52722.

Risk Disclosure: Investing involves risk including the potential loss of principal. No investment strategy can

guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee

future results.

Neither the named representative nor the named firm gives tax, accounting, or legal advice. This material is for

information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any

security. The content is developed from sources believed to be providing accurate information; no warranty,

expressed or implied, is made regarding accuracy, adequacy, completeness, le-gality, reliability or usefulness of

any information. Consult your financial professional before making any investment decision. For illustrative use