Hawthorne & Co. CPAs

Year-End Tax Planning Moves for Individuals

Year-End Tax Planning Moves for Individuals

Now, as year-end approaches, is a good time to think about planning moves that may help lower your tax bill for this year and possibly next. Year-end planning for 2020 takes place during the COVID-19 pandemic, which in addition to its devastating health and mortality impact has widely affected personal and business finances. New tax rules have been enacted to help mitigate the financial impact of the disease, some of which should be considered as part of this years’ planning.

We have compiled a list of actions based on current tax rules that may help you save tax dollars if you act before year-end. Not all actions will apply in your particular situation, but you (or a family member) will likely benefit from many of them. We can narrow down the specific actions that you can take once we meet with you to tailor a particular plan. In the meantime, please review the following list and contact us at your earliest convenience so that we can advise you on which tax-saving moves to make.

Click on a "Read More" button to open a PDF with more information on each topic.

CARES Act Relief

Coronavirus related distributions made during 2020 from a qualified retirement plan are not subject to the 10% extra tax on early distributions up to $100,000.

Converting your Traditional-IRA to Roth IRA

Consider converting traditional-IRA money invested in any beaten-down stocks (or mutual funds) into a Roth IRA in 2020.

Required Minimum Distributions Waived in 2020

Required minimum distributions that usually must be taken from an IRA or 401(k) plan have been waived for 2020.

Charitable Donations (Qualified Charitable Distributions – QCD)

Consider making 2020 charitable donations via qualified charitable distributions from your IRAs.

Contribute to Traditional IRAs

Establish and contribute as much as you can to one or more traditional IRAs in 2020.

Rollover Distributions

Take an eligible rollover distribution from a qualified retirement plan before the end of 2020 if you are facing a penalty for underpayment of estimated tax.

FSAs and HSA Contributions

Increase the amount you set aside for next year in your employer’s FSA. Make a full year’s worth of deductible HSA contributions for 2020.

Defer Expected Bonuses

It may be advantageous to try to arrange with your employer to defer an expected bonus. This could cut as well as defer your tax.

Postpone Income Until 2021

Postpone income until 2021 and accelerate deductions into 2020 if doing so will enable you to claim larger deductions, credits, and other tax breaks.

High Basic Standard Deductions

Many taxpayers won’t be able to itemize because of the high basic standard deduction amounts that apply for 2020. Some taxpayers may be able to work around these deduction restrictions.

Paying Deductible Expenses

Consider using a credit card to pay deductible expenses before the end of the year. 

Long-term Capital Gains

If you hold long-term appreciated-in-value assets, consider selling enough of them to generate long-term capital gains.

Surtax on Unearned Income

Higher-income earners must be wary of the 3.8% surtax on certain unearned income.

Additional Medicare Tax

The 0.9% additional Medicare tax also may require higher-income earners to take year-end action.

Increase Withholding

Consider asking your employer to increase withholding of state and local taxes before year-end to pull the deduction of those taxes into 2020.

Gift Tax Exclusion

Make gifts sheltered by the annual gift tax exclusion before the end of the year if doing so may save gift and estate taxes.

Disaster-Related Losses

You can choose to claim uninsured or unreimbursed disaster-related losses on the return for the year the loss occurred, generating a quicker refund.

Insurance or Damage Claims

You may want to settle an insurance or damage claim in 2020 in order to maximize your casualty loss deduction this year.

These are just some of the year-end steps that can be taken to save taxes. Again, by contacting us, we can tailor a particular plan that will work best for you. If you have any questions or would like to schedule an appointment, please contact our office.

We look forward to hearing from you.

** This information is provided for general educational purposes only. Before taking any action based on this information, we strongly encourage you to consult with a professional accounting advisor about your specific situation.

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