18 Dec Year-End Moves to lower Your 2020 Tax bill
For many reasons, 2020 has been a crazy year, so don’t let your 2020 tax bill be another wild thing added to this. With the year almost up, there are some year-end moves you can make that can help you lower your 2020 tax bill and help you for future tax years, as well.
At Tax Advantage, we are an accounting firm equipped with CPAs in Jacksonville Beach who provide both individuals and businesses with tax expertise. For this article, we wanted to share some different things you can do before the new year that can impact how much tax you will pay next April.
- Check your withholding. A bigger tax bill could be caused by the fact that you didn’t have enough money being withheld from your patch. You can use the IRS’s Tax Withholding Estimator to determine if you should file a new Form W-4 with your employer and increase the amount of taxes withheld from your paycheck before the end of the year. If it looks like you will owe money when you file your return, this tool can tell you how much extra withholding you should put down on Line 4(c) on the W-4 form to catch you up on withholding for the year. Then in 2021, complete another W-4 for the withholding 2021.
- Give to charity. Giving to charities not only contributes to a good cause, but also has a positive tax impact. In 2020 individuals can have a 300 charitable deduction in addition to the standard deduction. You can sell loser shares, book the tax-saving capital loss, and then give cash sales proceeds to charities. In turn, you will have tax-saving capital losses and tax-saving charitable deductions. Now if you donate winner shares (publicly traded that you have had over a year), the charitable deductions equal the full current market value of the shares at the time of the gift.
With this type of donation, you avoid capital gain taxes, and you get a tax-saving charitable deduction. Also, the CARES ACT, a relief act put into place this past spring, allows taxpayers, who take itemized deductions on their tax return, to deduct up to 100% of their adjusted gross income for cash donations to public charities, but you can’t collect a 100% deduction for donating cash to your donor-advised fund — this applies for 2020 only.
- Prepay 2021 bills. If you plan to itemize, you can start to prepay deductible expenses such as mortgage payments and state taxes due in January. Other things you can prepay before 2021, medical bills, and college tuition.
- Think about Retirement Planning. In a Roth IRA, the after-tax dollars you save in this account grow tax-free over time. While with a traditional IRA or 401(k) you’re paying ordinary income taxes. Also Required Minimum Distributions (RMD) have been waived for 2020, taxpayers who do not need the funds can forgo their current RMD and defer the tax burden to the future.
- Remember business deductions. This is a great way to reduce your taxable income if you have your own business or a side job. Many business expenses are deductible including write-offs for mileage, material expenses, and more. Self-employed taxpayers and independent contractors who meet the requirements can deduct Home Office expenses; certain limitations apply. You can download our Schedule C Worksheet to help analyze your deductions.
- Carryback Losses – The CARES ACT allows taxpayers to carryback Net Operating Losses incurred in 2018, 2019, and 2020 can now be carried back five years. It may be beneficial for clients to carry back those losses rather than carrying them forward.
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Our CPAs at Tax Advantage can tell you where you can make deductions or lower your tax bill.
Our team provides comprehensive tax services to help our clients make sound decisions and effective plans, and we believe in providing tax planning and preparation services that exceed expectations.
We work with individuals to build a tax planning strategy that will maximize tax deductions and effectively reduce current and long-term income tax obligations. Tax laws change and can be complex so as your tax experts, it’s our job to work with our clients to help them understand all options to help them achieve financial goals and understand all tax implications throughout different stages of life.