2020 sure was a unique year. In its relief measures related to the Covid-19 pandemic, Congress offered some interesting tax savings opportunities. But the new provisions also offered up plenty of ways to make classic tax mistakes.

The CARES Act waived the need for older taxpayers to take required minimum distributions on retirement accounts, which meant they might draw less taxable income and lower tax bills. The thinking went, “I don’t need it and don’t have to take it, so I won’t take it and I’ll save some money on taxes.”

While that makes sense, retirees should have asked, “Even though I am not required to take a distribution, should I take money out anyway?”

Many should have said “yes.” We helped more clients voluntarily take distributions or execute Roth conversions this year than in any I can remember. In many cases, the income was taxed at a low rate, and gross income was low enough to avoid triggering extra costs on things such as Medicare premium increases.

For some clients, the lack of RMDs made capital gain harvesting attractive. For several of our married couples, some of those gains were not taxed at all.

There were other mistakes. Some retirees find it more convenient and flexible to pay much of their tax liability through withholding payments from IRA distributions rather than making quarterly estimated payments. With the RMD waiver, taxpayers who didn’t take any distributions also didn’t make the planned withholding payments. If the withholding from retirement account distributions covered taxes for other income or activity, the taxpayer can be subject to penalties and interest for underpayment.

Retirees aren’t the only ones with potential withholding issues. An executive order by President Trump in the fall allowed for the deferral of payroll taxes. This gave certain workers a boost in take-home pay. But some of them mistook a deferral for a waiver. They didn’t realize they would be paying the payroll taxes in 2021 in addition to the payroll taxes on their 2021 income, and they face reduced cash flow.

Some people servicing student loans blew an opportunity, too. Federal student loan payments have been on deferment, with no interest accruing. This will help those who were laid off or who suffered a drop in income, but others chose not to pay just because they didn’t have to, regardless of whether Covid hurt their cash flow. Some didn’t assess their situation. Others are banking on forgiveness legislation.

But not paying might have been a mistake. Today’s 0% interest rate presents the best opportunity some may ever have to make progress paying down their student loans. When the deferment ends, the typically not-so-great rates will return. Better it gets charged to a lower balance than a higher one.

Whenever markets sink, you hear some common pieces of advice—such as that it’s wise to harvest tax losses. Not always. A client forwarded a blog post recently from a guy who harvested $20,000 in losses back in the spring of 2020 to offset $20,000 in gains he’d taken earlier in the year. He didn’t want out of the markets, so to avoid the wash sale rules, he bought similar holdings. He was very proud of his swaps, maintaining his risk profile and “beating Uncle Sam.”

What he describes is something a lot of advisors recommend for their clients; we had, in fact, made tax-motivated swaps for our client. But there were some notable differences.

The blogger said his household enjoyed comfortable incomes that, when combined, came out to $70,000. Hmm. If the household had $70,000 in income and $20,000 in gains, his was a wasted effort. The tax code says that losses are first used to offset capital gains. After applying a standard deduction, joint filers with $70,000 of income would not pay tax on $20,000 of long-term gains. The loss harvest did nothing for his tax bill.

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