2020 Year End Tax Tips
Before Dec. 31, think about how you can help your tax situation for this year. By following year-end tax tips, you can prepare in 2020 to save on taxes due April 15, 2021.
Compare standard versus itemized deductions — If your current or planned 2020 itemized deductions are more than your standard deduction, you’ll save tax dollars by itemizing.
If your itemized deductions are close to your standard deduction in 2020, consider shifting some of your deductions to 2021, when you might be able to itemize more. Conversely, if you know you won’t have as many itemized deductions in 2021 as you do in 2020, consider shifting some deductions from next year to this year.
If you can’t itemize in 2020 but can in 2021, consider making your annual charitable donation in January instead of December.
If you’re itemizing in 2020 and can pay real-estate tax in 2 installments, consider making the payment in 2020 that would normally be due in early 2021.
Make flexible spending work for you — If you don’t have enough medical expenses in 2020 to meet the amount you set aside in your flexible spending account, you’ll lose the money. If you have extra money in the flexible spending account to spend, you might want to:
- Schedule end-of-year appointments.
- Buy new prescription glasses and contact lenses.
- Buy medical supplies.
- Buy medicines you’ll need in 2020.
Review your medical costs — Keep track of your unreimbursed medical expenses all year long. You can deduct them only if they’re more than 7.5% of your AGI. If you’re close to the 7.5% requirement, you might consider having an elective or necessary procedure before year-end.
Check that the procedure is among the qualifying deductible expenses. Many elective procedures don’t qualify for this deduction.
Get serious about retirement — One way to lower your taxable income for the year is to contribute to a retirement plan, like a:
- Deductible IRA
- SIMPLE IRA
You have until December 31 to make contributions to 401(k)s and 403(b)s for 2017. You have until April 17 to make contributions to IRAs and some other plans. Check with our office and we can discuss which plan is best for you.
Adopt a charitable attitude — Donating clothing and household goods to charities before Jan. 1, 2021, is a good deed that’s also deductible on your 2017 return. Get a receipt from the organization you’re donating to. The deduction is limited to the item’s current fair market value – what you could sell it for at a garage sale.
Sell off securities — If you have a large net capital gain so far this year, you might want to sell some stock to generate a loss before year end. Doing so could reduce the amount of tax you pay this year. However, if you sell stock to generate a loss, you’re prohibited from purchasing substantially similar stock for 30 days before or after the sale that generated the loss.
If the securities you sell are mutual-fund shares, you might be able to reinvest the proceeds in a similar – but not identical – fund, maintain your investment strategy, and deduct the loss. Whatever you do, don’t let possible tax savings cause you to make a decision contrary to your investment interests.
Investigate before buying mutual funds — If you’re planning to invest a substantial amount in a mutual fund, confirm that the fund isn’t declaring a large amount of dividends in December. If you buy shares before the dividend is declared, you’ll increase your income by the amount of the dividend even if you reinvest the dividend in new shares. You can get this information at the fund company’s Web site.
Give the gift of cash — You can give a gift up to $14,000 to any 1 individual free of gift tax. If you’re married, you each can gift a person up to $14,000 tax free -26,000 in total. In most cases, the gift isn’t complete until the recipient of a check cashes or deposits it. So, confirm the recipient does this by the end of the year.
Don’t let extra money sit around — If you have a large amount of cash to invest and want to shift some of your income to 2020, consider investing in a short-term CD or a U.S. Treasury bill that matures in 2021.
Employ self-employment strategies — If you’re self-employed and use the cash method of accounting, you can decrease your 2020 taxable income by:
- Delaying your December billings until January
- Setting up a qualified self-employed retirement plan (SEP)
- Buying supplies and equipment this year instead of next