Last-Minute Tax Planning Strategies to Consider Before the End of 2020
2020 has been a rollercoaster of a year to say the least. As we approach the end of the year, here are just a handful of last-minute tax planning strategies to consider:
Charitable Deductions
In 2020, taxpayers who do not itemize can take an above-the-line charitable deduction of up to $300. Charitable deductions for taxpayers who do itemize are normally limited to 60% of their adjusted gross income (AGI), but that limit has been increased to 100% of AGI for charitable contributions made during 2020.
Gifting
Gifting appreciated property to family members can shift the taxable gain to family members in lower tax brackets, lowering the family’s overall tax burden. Individuals can also make gifts of up to $15,000 to an unlimited number of donees without triggering a gift tax liability or counting against the donor’s unified estate and gift tax exemption. Gifts must be made by December 31 to count as a 2020 gift for gift tax purposes. Gifts made by check must be cashed or deposited by the donee by the deadline.
Retirement Planning
The Coronavirus Aid, Relief, and Economic Security (CARES) Act allows individuals to take up to $100,000 in coronavirus-related distributions from retirement plans without being subject to the normal 10% penalty for early distributions. Eligible distributions can be taken through December 31, 2020 and may be repaid within three years. Any amount to be included in income from the distribution can be spread over three years. The CARES Act also provides for coronavirus-related loans of up to $100,000 from qualified retirement plans, for which repayment can be delayed.
Taxpayers eligible to contribute to an IRA or 401(k) plan should consider maximizing contributions of pre-tax income during 2020. Self-employed individuals can consider setting up a Keogh plan or similar tax-advantaged retirement savings vehicle.
Economic Impact Payments
The direct stimulus payments that were distributed to most Americans earlier in 2020 are treated as advance refunds of a 2020 tax credit. The amount of the advance refund received will reduce the credit available on the taxpayer’s 2020 return. Individuals who did not receive the full amount they were entitled to can claim the difference on their 2020 tax returns.
Self-Employed Sick Leave
The Families First Coronavirus Response Act (FFCRA) provided certain employers with payroll tax credits equal to 100% of the qualified family leave and qualified sick leave wages paid for certain COVID-19-related absences compensated by the employer. The FFCRA also provides for eligible self-employed individuals to claim a refundable credit against income tax for comparable family leave or sick leave.
Tax rules are complex and constantly changing. Schreiber Accounting and Advisory can help you lawfully minimize your tax liability with comprehensive tax compliance and tax planning services. Contact the firm for more information.
Material discussed is for informational purposes only. It is not to be interpreted as investment, tax, or legal advice. Individual situations vary, and this information should only be relied upon when coordinated with individual professional advice.