Even the tax code isn’t safe from COVID-19
Editors note: This column was written in December 2020.
I believe we’re all looking forward to closing the book on 2020. But before we can slam it shut, there’s still some work to be done. And only a few days left to do it.
We’ve never experienced anything like this before, and hopefully the onset of the vaccine will soon bring our days of isolation to an end. Sadly, many of us lost loved ones and were unable to mourn and honor their lives.
At the other end of the spectrum, there were milestones such as weddings and childbirths that families were not able to celebrate. In other words, our lives were fairly isolated throughout the year. The highs and the lows were all experienced on a relatively even keel.
From a financial perspective, even after we receive the vaccine and our everyday lives begin to return to some degree of normalcy, we can’t totally close the books on 2020. Your 2020 federal and state tax returns need to be filed. And you should be laying some groundwork for 2021 as well.
Due to circumstances beyond their control, a large segment of the population received unemployment benefits in 2020. Unfortunately, those benefits are not tax-free. It’s income and Uncle Sam requires you to report it as such. So don’t be surprised when you get a form 1099-G in the mail to file with your returns. Or shocked if you have to write an unexpected check to the taxman.
Those who maintained their jobs but worked from home may also be in for a surprise, especially if their employer is located in a different state. You may be required to file a tax return in your employer’s state in addition to your own state of residence. Again, additional taxes may be required.
Regardless of circumstances, one thing that’s always consistent is that the year isn’t really over until you file your tax returns. You may typically do your own taxes, but if you have anything out of the ordinary for 2020, consider consulting a tax professional.
At least have an expert review your 2020 returns. There have been a number of COVID-19 provisions and exceptions added to a tax code that’s already complicated enough.
Back in March of this year, many had a pretty bleak view of the investment world. I’d say most investors thought it was going to be a disastrous year for their portfolios. But in fact there was a nice rebound, and instead many will enjoy positive results.
Consequently, I believe that most investors are feeling pretty optimistic about 2021, especially with a vaccine coming. But a word of caution. At the end of the day, nobody can accurately predict investment performance. And with so many people overly optimistic about how the markets may perform in 2021, I’m a bit concerned that the herd will blindly rush in. Unfortunately, herd mentality is seldom correct.
Looking ahead, one of the best ways to prepare for next year is to review your 2020 year-end statements. Are your investments in line with your immediate goals and objectives? Do you need to increase the income from your investments or tweak or re-balance your portfolio?
If you see lifestyle changes on the horizon for 2021, it would be a good idea to consult an advisor and review those 2020 year-end statements.
Securities offered through LPL Financial, Member FINRA/SIPC. E-mail your questions to kenmorris@ lifetimeplanning.com.
Ken is a Registered Representative of LPL Financial. Ken is VicePresident of the Society for Lifetime Planning. All opinions expressed are those of Ken Morris. LPL and Society for Lifetime Planning are independent companies. Investing involves risk including loss of principal. No strategy assures success or protects against loss.