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The year 2020 isn’t coming to an end soon enough for many people as we head to the end of the year. With the end of year coming it is a good time to finalize tax planning to reduce your taxes. In this post we will discuss some opportunities and items to check prior to yearend.
Many individuals have had income changes that have occurred during the year but have not changed their tax withholdings. This is a mistake as those changes will affect how much is due. For those that have lost income and are making estimated payments, the 4th Quarter payment is coming up and this payment can be reduced or eliminated which will help cash flow. If the opposite occurred and there is more income, then a similar increase in payment should be made. In the case of salaried employees with a large change in income, if still employed, a change in withholdings could be warranted. If you have the opportunity to defer income such as bonuses it may make sense to do this in a year with high income as well.
Retirement accounts such as IRA, SEP, and Roth IRAs allow reductions in taxable income. In addition, these contributions can be done in the year after taxes are due, typically allowed up to the tax filing due date. This is one of the few items that can be changed after the tax year has been completed to adjust your tax liability.
If you itemize then there are opportunities to make additional mortgage interest payments, real estate tax (below 10,000 cap with state income tax), medical expenses, and contributions prior to yearend. With the higher standard deduction this may also be necessary in order to be able to take the deduction at all so strategizing and batching the expenses will be advantageous. If capital gains are going to be big for the year and there are capital losses that haven’t been recognized, it would make sense to have a conversation with your broker about whether to sell to reduce the tax on those gains prior to yearend.
Make sure that when yearend arrives and you aren’t surprised by a large tax bill that you could’ve planned for with a little bit of work in December. If you have any tax planning concerns, we can help and review your current situation.
We’re standing by to help you with all your accounting needs, feel free to contact us anytime!
Year End Tax Planninggsrc2020-12-03T07:28:44-08:00