Santa, Shotguns, and Security

Written by Jimmy Mengel
Posted December 24, 2020

It’s the time of the year that most of us would be dressing up for holiday parties, kissing under the mistletoe, and drinking a bit too much eggnog.

Sadly, Christmas in 2020 has killed two out of the three. 

Parties are canceled.

Travel is on hiatus. 

Kisses are verboten.

Hell, I don't think mommies are even kissing Santa Claus this year. That would be a superspreader event the likes of which the world has never seen. That's at least 2 billion people smooching with a bearded stranger.

Stay out of my chimney, Mr. Claus. I've been boarded up for a year, I have a shotgun, and I've been drinking.

Despite having three chimneys in my house to choose from, Santa doesn't stand a chance.

Oh, right, that's the drinks talking again.

People are hitting more than the eggnog — the frequency of drinking increased by about 14% this year. I suspect that the number is much higher, since people tend to lie about such things on surveys. For better or worse, I'm already vetting a series of alcohol companies in my paid services.

But let's get to some sober thoughts.

Between the Yuletide and New Year’s resolutions, the end of the year is a prime time to take inventory of your finances...

And the best place to start is with your tax return.

You could be giving up far more money than necessary to the giant suck-hole that is the U.S. government. If you are a Crow's Nest reader, you know damn well we give the IRS no quarter.

Do yourself a favor and take advantage of tax-saving strategies. There are a number of different areas you need to look at — including retirement savings, investment income, itemized deductions, home improvements, and health savings accounts.

Of course, this is just a small list, and you really do want to make sure your refund is as large as possible, right? At the very least, you want the government to get less of your hard-earned money.

So make sure you do at least these things...

Maximizing Your Write-Offs

When it comes to getting the most from your taxes, one of the first things you need to do is practice due diligence on possible deductions.

Most experts seem to advise looking into deferring your income until the following year (or possibly later). This could mean something like delaying a big bonus at work, an extra-special commission, or any decently sized chunk of money you could convince an employer to pay you in the coming year rather than now.

Max out Retirement Plans

Contributions made to Roth IRAs are on an after-tax basis, but all the income made in the account can grow tax-free, subject to certain very easy-to-satisfy requirements.

If you have extra cash, the best thing to do is max out your Roth IRA. You can contribute $5,500 per year tax-free (or $6,500 if you are over 50).

If you have a health savings account (HSA), you can max that out as well. Keep in mind you do not have to use the funds for healthcare needs; you can actually invest the money within the HSA for your retirement. MarketWatch explains with the help of Jorie Pitt, an associate financial planner at AHC Advisors:

By doing so, you get a tax deduction for your contribution and you get tax-deferred or tax-free growth on the contribution and the investment earnings depending on the future use of the money, said Pitt. "If you use the HSA assets to pay for qualified healthcare costs now or in the future the contribution and the earnings are withdrawn tax-free... If, after the age of 65, you use the HSA assets for non-healthcare costs then the contribution and the earnings were tax-deferred and the money will be taxed upon withdrawal from the HSA."

The limit for HSA contributions is $3,250 for individuals and $6,450 for families.

Itemized Deductions

The next thing to consider is possible itemized deductions. Two great areas to start with here are home mortgage interest and property taxes.

Not only do homeowners get to include their property taxes along with their mortgage interest as a write-off, but you can also deduct interest on debt that was incurred to buy, build, or substantially improve your principal residence and one other personal residence.

Take advantage of these deductions if at all possible. You may want to consider kick-starting that end-of-the-year home improvement project.

Tax Selling

All of us have at least one or two stinkers sitting in our stock portfolio. The end of the year is the time to put those losers to work...

A quick caveat: If you plan on selling losing stocks for tax purposes, I recommend speaking with your accountant or financial adviser to find out the best approach. Simply put, when you sell stocks for a gain, that's taxed as a "capital gain.” However, if you sell for a loss, you can claim that on your taxes as a “capital loss” to offset whatever gains you may have collected.

It also helps to have held the stock for a full year to lower your tax liability.

Now, I am not an accountant, so I seriously recommend you have this discussion with one before making such moves.

The area is full of possibilities. You could take some of the stock or even fund shares and donate those to charity in order to get another deduction on your return. This works great if the shares have increased in value, since you'd also avoid paying tax on their appreciation.

If the stock has been at a loss (maybe an even better reason to consider donating), sell the stock first so that you can claim the loss as a deduction and then make your charitable donation... You’ll get two deductions at once.

Those of you who are aged 70½ can make cash donations directly from your IRA to qualified charities. These can be up to $100,000 in total, and they are completely federal income tax-free. They do not get reported as charitable write-offs on your tax forms, although they will still definitely help your tax profile and allow you to keep more of your money. Be sure to check with a professional on this one, since there are some unique requirements.

So if you have truly given up on a stock, put that loser to work to reduce your end-of-year tax burden...

Planning for Your Future

They don't call them New Year's resolutions for nothing...

It's the perfect time to reflect on the year past and make sure that you put your best foot forward starting January 1.

Of course, each person and each family will be slightly different. You may have had some major life-changing events in the past year, like buying or selling a home, getting married, or even going through a divorce. All of these things can have impacts on your taxes, so you should take the time now to consider how to work around all of them and get the maximum return.

I know that this isn't sexy advice... but the mark of a successful person is learning from your mistakes, and adjusting your life to put yourself in the best position to succeed.

As Benjamin Franklin supposedly said, "Be at war with your vices, at peace with your neighbors, and let every new year find you a better man."

So back up and give Santa some room this year (unless he's moving on your wife). Give yourself the gift of Christmas future.

Happy Holidays from Outsider Club and The Crow's Nest!


Jimmy Mengel

follow basic @mengeled on Twitter

Jimmy is a managing editor for Outsider Club and the investment director of several personal finance advisories, The Crow's Nest, and The Adventure Capitalist For more on Jimmy, check out his editor's page.

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