With first quarter estimated payments less than a month away, perhaps it is not too soon to discuss tax planning for 2020. In the last economic calamity (2008-09(, I think some people suffered a lot of loss, while many others weren't really affected at all, if they didn't get laid off and could ride out the stock market downturn. This time, I think most everyone who isn't on a "fixed income" (see below) is going to suffer a loss to some degree, so the effects will be much more widespread.
Two further personal observations:
- Will many wage earners now be over-withheld, because their withholding was based on a full year's worth of earnings but they aren't currently earning anything?
- Will there be extraordinary levels of both cap gains and cap losses (possibly with wash sales)? (due to record market volatility.)
- Will some people not only cash out their equity positions within retirement accounts as markets go down, but then also panic and prematurely remove the cash itself from the account (triggering tax and possibly penalty)? (I remember one client who did this back in the 2008 crash).
Two further personal observations:
- Normally, I procrastinate until the extension deadline, but this year I was good and got my own return filed in February, and made modest IRA and 401k contributions right away, about 3 weeks ago. It's one thing to end up not realizing unrealized market gains (the stock market was in a bubble anyway), but it hurts more to put new money in just 3 weeks ago and realize it is now worth 30% less (or maybe not quite that much, as some went into bond funds, but I haven't checked).
- For all those people who are always seeking pity for being on a "fixed income", I think the time has come to point out that many people especially now would love to be on a fixed income. Not only is the income of the pity-seekers not really "fixed", but it's not true that others have some magical ability to make their income go up whenever they please.
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