[et_pb_column type=”4_4″][et_pb_text admin_label=”Text”]At Taxman & Associates we are reviewing this past year and are amazed at the resilience of our community to come together and face the challenges that 2020 has brought us. We are very grateful to you, our clients, for being able to work with us during this time. What a year it’s been!
This year we’ve seen many new tax laws enacted including the Taxpayer Certainty and Disaster Tax Relief Act (Disaster Act), Setting Every Community Up for Retirement Enhancement (SECURE) Act, the Coronavirus Aid, Relief, and Economic Security (CARES) Act to aid in the COVID-19 response this past March. With 2020 coming to a close within a few weeks, we would like to help you navigate the new tax law changes and discuss steps that can be taken to help reduce your tax bill.
Here are some strategies that can save you money and lower your tax bill for 2020 and beyond:
1. Start Tracking: A new year is a great time to begin establishing good expense tracking habits that will can lead to higher tax deductions and improve your audit defense. Do you drive your car for business purposes? Maximize your auto deduction by beginning to track your total and business related mileage using a tracking app such as MileIQ. Do you own a rental property and work on it often? If you track the time you (and anyone you employ) spend with respect to all of your rental properties, you are eligible for an additional deduction if the total time spent exceeds 250 hours per year. Our associates can advise you on what you should be tracking in order to increase your deductions and pay less tax.
2. Refinance Your Mortgage(s). Interest rates in the United States are currently at historically low levels and continue to decrease. Although this means you aren’t earning much on your savings in the bank, you can still take advantage of this by refinancing your mortgage to a lower interest rate. A refinance can save you tens of thousands of dollars over the life of your loan.
3. Establish and Fund a Tax-favored Retirement Plan. If you are self-employed or run a business and do not currently have a retirement plan in place, consider setting one up. Funding a retirement plan is the easiest way to keep more of your money and reduce your tax bill. The SECURE Act also offers an additional incentive for establishing a retirement plan in 2020. The credit for employers that adopt a new eligible plan is increased from $500 to a maximum of $5,000, and a $500 credit has been added for new small employer plans with an auto-enrollment feature.
4. Establish a Charitable Donor-Advised Fund. Due to higher standard deduction amounts ($12,400 for singles and $24,800 for married filers in 2020) your charitable donations may not be deductible if the sum of your itemized deductions do not exceed the standard deduction. A donor-advised fund allows you to “superfund” your contributions in a given year and take the full tax deduction in that year, but distribute the donations over a number of following years. Also consider contributing appreciated assets or investments that have been held for more than a year to avoid paying capital gains taxes.
5. Tax Loss Harvesting. Consider locking in any losses on poor asset investments before year-end. The losses can be used to offset your capital gains, with the excess losses carried forward to future years. Keep in mind each year you may deduct up to $3,000 of capital losses in excess of your capital gains at your ordinary income tax rate. This is an excellent strategy if you find yourself sitting in high bracket.
6. Make Your Estimated Tax Payments: One of the easiest ways to minimize the amount you are paying to Uncle Sam is to be sure you aren’t paying unnecessary underpayment penalties. We can calculate precisely how much you should be paying to the IRS quarterly to ensure you aren’t paying anything extra.
Above are only some of the tax planning moves that could potentially benefit you or your business. If you would like to schedule a time to talk to Howard, Carey, Matt or Joe to help design a year-end planning package tailored to you, please contact us to arrange a call or a meeting.