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2020 is almost over, and there are plenty of reasons to be glad about that. But, there are still some tax-saving moves you can make to ring in the new year in your best financial shape.
Assessing Your Finances
If you have been one of those who have lost their job this year, or had a change in your work hours, looking over your last paycheck can tell you a lot about how you are doing (year-to-date). If needed, you might adjust your tax withholdings before the end of this year. For example, did you get untaxed unemployment payments but are working now? You can adjust your withholding amount to make up for that, or if you have a bonus coming putting you into a higher tax bracket. If you have a retirement account, the IRS allows plans in a workplace environment to contribute up to $19,500. If you have amassed higher savings than what you projected for this year, you can invest the money you don’t need right now to add to an emergency fund. Or maybe make a contribution to a health savings account, a 529 educational savings account or an IRA or Roth before December 31, 2020 rolls around.
Tax-Loss Harvesting or Rebalancing
Did you realize capital gains this year that are taxable? You can sell at a loss along with taxable ordinary income at up to $3,000 which you can then reinvest in another security. You’ll want to follow the IRS’s protocols regarding “wash sales” on this. If you have taxable and tax-deferred accounts, you can do a rebalancing so that your positions are in line with any long-term goals you might have. Municipal bonds are a great investment if you are a high-income earner who is living in a high tax state because those bond interests are usually free when it comes to your federal income taxes. And you can rebalance pretty much any time of the year for a qualified account.
Use Your Required Minimum Distributions (RMDs) Pause
The IRS is making you remove money out of any tax-deferred retirement accounts before December 31 for those who are 72 years old (instead of 70 as that’s been paused). Money saved in an IRA means less income for the tax year, lowering your federal income tax and potentially putting you into a lower tax bracket. Implementing a Roth IRA conversion can save you money since you pay the taxes on the conversion amounts early on instead of when you take out funds. Roth IRAS also don’t come with required minimum distributions (RMDs) during your lifetime if you are the original owner.
Create a Charitable Giving Plan
The CARES Act for COVID-19 pandemic relief offers you a $300 deduction from your income if you give to charity on your 2020 income tax return, and it doesn’t matter whether you take a standard deduction or itemize. So if you are closing in on the standard deduction cap, contributing to a charity can put you over the amount. If you prefer, you can concentrate your charitable contributions into one year and then not making them for some years to come. This is called “bunching,” and is great for a donor-advised fund that can help you make the most of your charitable contributions even as you are spreading out your giving over several years.
The Corporate Capital Difference
Now is a good time to assess your financial accounts before December 31 to help lower your taxes. Our Corporate Capital tax advisors are here to help you make the most of your income taxes all year round. Our bookkeeping service in Las Vegas offers you the following:
- Consulting on your current tax liability and finances
- A quarterly review of profit and loss, estimated Nevada tax liability, fixed asset list and itemized detail list
- Advice on plan setup and tax strategy to balance excess profit
- Reconciliation of year-end general ledger accounts, 1099 tax forms, and financial statement preparation
We welcome you to call Corporate Capital at 855-371-0070 in Las Vegas, NV, for more information. Our skilled specialists have been successfully helping businesses around the country grow by forming corporations and LLCs in Nevada, and we look forward to helping you with your financial needs!
Source Article: https://www.fidelity.com/learning-center/personal-finance/year-end-taxes-2020