As of this writing, there’s only about one-thousand hours left to 2020 and then this year can kiss my pumpkin.
The current surge in new COVID cases is foiling what was setting up to be a rather special Thanksgiving holiday. Families were actually looking forward to seeing their crazy relatives this year with a renewed sense of what is really important in life. Now, it is unclear how you can pass the green bean casserole across the dinner table via Zoom.
From what I’ve read, the year 1621 sucked worse than 2020. Pilgrims escaped religious persecution by sailing to America that year on oversized kayaks and barely survived their first months at Plymouth Rock. They celebrated with a grand fall feast, grateful for their survival and the Thanksgiving tradition was forged.
Not so fast. Some historians attribute the Thanksgiving tradition to Jamestown, Virginia in 1619. Others cite Ponce De Leon – my favorite explorer – declaring the first Thanksgiving when he bumped into Florida and claimed it for Spain in 1519.
It remains a mystery why the Detroit Lions became part of the Thanksgiving holiday.
As for the first declared Thanksgiving holiday, that’s murky too. Of course, York Pennsylvania is involved in the discussion.
In October, 1777, the Continental Congress was holed up in Yorktowne, struggling to finance a war and govern thirteen autonomous colonies. There they received excellent news that the Continental army had defeated the British in Saratoga, New York. This decisive victory was the Gettysburg of the Revolutionary War – a key turning point that eventually led to our independence.
In recognition of the military victory, on November 1st, 1777, the Congress issued an official proclamation thanking God and encouraging colonists to observe a day of prayer and thankfulness while thinking about the revolutionary cause. The first Thanksgiving holiday was thusly observed on December 18, 1777. General George Washington, wintering in Valley Forge, ordered his freezing army to observe the holiday. Short of blankets, shoes and food, I’m sure his troops were overcome with gratitude.
That history makes a fairly strong case the first Thanksgiving holiday was sired in York.
Not so fast. President Washington issued a proclamation of Thanksgiving during his first term in 1789. Thomas Jefferson nixed the idea of a national holiday, however, worried about separation of church and state. Thereafter, Thanksgiving was more tradition than holiday until Abraham Lincoln proclaimed the first permanent Thanksgiving holiday in 1863 following the Union victory at Gettysburg, to be recognized henceforth on the last Thursday in November.
The last mildly interesting tidbit about the Thanksgiving holiday was FDR’s attempt to move the holiday to the third Thursday to extend the Christmas shopping season during the Great Depression. It flopped – FDR was even compared to Hitler by some political opponents for his audacity – and it was quickly reversed.
I’m showing my bias, but I’m sticking with the Pilgrims as the forefathers of the Thanksgiving tradition and with York as the home of the first holiday observance. Sue me.
One of the silver linings of the capital market crash last March is the window it opened to “harvest” investment losses to create current and future tax benefits. The reality is there hasn’t been many opportunities over the past decade to book investment tax losses during the long stock bull market.
Note that investments held in IRAs, Roth IRAs and retirement plans are already tax-advantaged, so selling an investment for tax benefits is not applicable. However, if you own investments in a “taxable” account, you still have a window of time to create a tax asset in 2020.
Realized investment losses are first used to offset any realized investment gains. You then can take a $1,500 deduction for investment losses - $3,000 if married – against any form of taxable income. Lastly, you can carry forward any unused investment losses indefinitely to use against future capital gains. That can be a powerful tax planning tool to have in your toolbox.
It is logical to think the tax loss harvesting opportunity has ended given the dramatic rebound in the stock market since Spring. Not so fast. Only large tech stocks are having a strong performance year; the average stock is still trading negative in 2020, so there’s a good chance you may have some investments trading below their cost in your portfolio.
We proactively booked tax losses back in March for our clients with taxable investment accounts. We sold investments trading below their purchase price, booked the tax loss and then simultaneously purchased similar investments so not to miss the market rally. These “tax assets” will be quite valuable in the future when rebalancing portfolios with less tax consequences.
Another unique 2020 tax planning opportunity was afforded by the CARES Act. For 2020 only, you can take a 100% deduction for cash gifts to charities. In the past, the deduction was limited to 50% of your gross income.
The less obvious benefit to this new charitable tax break is the increased charitable deduction in 2020 may afford the itemization of your deductions again. Starting in 2018, new federal tax law doubled the standard deduction and capped the deduction for state and local taxes at $10,000. This combination resulted in a huge number of taxpayers who can no longer write off mortgage interest, charitable gifts, eligible medical expenses, and state / local taxes.
The full charitable deduction in 2020 could make these expenses deductible again. Think about making two years of charitable gifts in 2020 to “bunch” your tax deductions into one tax year to gain an extra tax benefit.
Finally, with a divided federal government coming in 2021, don’t expect major tax law changes until at least 2023. However, taxes will have to eventually increase to pay for the government’s spending spree, so Roth IRA conversions over the next few tax years could make good sense while tax rates remain cheap.
Be sure to check with your tax advisor before making any tax moves, no matter the year.
Until next time, happy Thanksgiving and be well…Tim