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Tax Planning Tips For Investors: 5 Things to Keep in Mind for the 2021 Tax Season Thumbnail

Tax Planning Tips For Investors: 5 Things to Keep in Mind for the 2021 Tax Season

This tax season may be a bit different for many Americans, due to economic uncertainty and changes amidst the COVID-19 pandemic. Giving your tax return a bit of extra attention and effort could help avoid problems or identify additional opportunities. Here are six tips investors may want to try before filing their 2020 taxes.

Tip #1: Start Preparing Early

There were some major financial changes we experienced in 2020 thanks to the coronavirus. The IRS issued approximately 160 million Economic Impact Payments which totaled over $270 billion, some small businesses received Paycheck Protection Program loans to stay afloat and millions of Americans filed for unemployment.1

With all of this economic uncertainty, tax filers should work with their tax preparer to determine how government assistance received in 2020 will be reflected when filing in 2021. By starting early, one has time to adjust and make changes to address an increase or decrease in their tax obligations this season.

Tip #2: Report All Earnings

Seven years ago, the IRS aggressively enhanced its ability to match income reporting to find possibilities of underreported income, particularly with those who receive 1099 and 1098 interest reporting.2 To best avoid penalties or an audit, report everything you know you earned, even if it was never paid as a paycheck - such as prize money, dividends or another form of passive income.

Tip #3: Don't Claim It If You Can't Prove It

If a tax filer claims a deduction on their taxes, they need to be able to prove it with the proper documentation or paperwork.

There’s a lot of this type of play in the investor world, whether it’s real estate preparation costs for house-flipping or broker commissions for stock trades. Either way, you need receipts and objective documentation to prove your costs. No matter how experienced your opinion is, that simply is not enough evidence.

Tip #4: Offshore Reporting Is Required

With a global market, the opportunity for offshore investing is far greater now, and that includes income invested in foreign accounts. If you have investments such as these, remember to report any interest or profit gains. The IRS proactively checks with foreign banks and can easily obtain accountholder records. Those who omit or fail to report such investments may face a costly penalty.

Tip #5: Think About Going Long 

It’s easy to get caught up in the chase for short turnarounds on a stock, but your capital gains taxes may be lower if you hold onto your investments longer than the short-term period. If you’re already in a good position with a stock and want to save on taxes, you may choose not to give up your profits on a short sale.

The 2021 tax filing will be a big change for some, but that doesn't mean you can't plan for it. If this past year has taught us anything, it’s the importance of being prepared, so the earlier you start working on your taxes, the more room you have to maneuver and make the necessary changes.

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The information presented in this article is obtained from or based on sources believed to be reliable. BWC does not represent or warrant its accuracy or completeness and is not responsible for losses or damages arising out of errors, omissions or changes or from the use of information presented in this article. The article does not purport to contain all the information that an interested party may desire and, in fact, provides only a limited view. Information presented does not constitute an offer to sell or a solicitation of an offer to buy any security.

All investments involve risk, including loss of principal invested. Past Performance does not guarantee future performance. Individual client accounts and performance vary. BWC does not provide tax advice.

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Beirne Wealth Consulting Services, LLC (“BWC”) is a privately owned, SEC Registered Investment Advisor with offices in Connecticut and Pennsylvania. BWC provides independent, fee-based investment management services and customized financial planning solutions. Our institutional business provides consulting expertise to defined benefit and defined contribution plans, endowments, foundations and non-profit organizations. Our private clients include high net-worth individuals and prominent families, many of whom bring complex wealth management challenges and multigenerational planning needs. For more information, please visit or give us a call today at 888-231-6372.

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