As we approach the end of the weirdest year ever, nearly everyone wants 2020 to be O-V-E-R (unless you love birthdays, and your birthday is between now and December 31st).
The year-end countdown has begun, and soon it will be too late to make certain positive changes to your 2020 tax situation. Several of these items, if addressed now, could make a big or small difference to your 2020 tax filing, AND add to your savings.
Year-End Tax Planning Checklist.*
1: How are you doing on maxing out your 401k? Please remember that a 401k participant can temporarily increase 401k contributions through December 31st to reach the $19,500 maximum contribution for 2020. Lots of 401k or 403b plans allow participants to contribute 25-30% of pay… or even 100% and then revert to the lower contribution percentage on January 1st of next year.
- these 401k contributions can be tax-deductible (unless you are contributing to a Roth 401k). It is not too late!
2: For those who have already maxed out the 401k for this year (great job!) think about contributing the same dollar amount per paycheck to another savings vehicle through the end of the year… such as a vacation fund, emergency fund or kids’ college funds.
3: Don’t have a 401k? Consider contributing to a tax-deductible IRA. The deadline is April 15th of next year to make the 2020 contribution to an IRA.
4: For non-working spouses who do not get to contribute to a 401k, consider making a contribution to an IRA for the non-working spouse; this vehicle is called a “spousal contribution” to an IRA and can possibly be tax-deductible.
5: Are you Self-Employed? How many employees do you have, if any? Consider a tax-deductible contribution to a SEP-IRA. SEP contributions can be as high as $57,000 FOR 2020 and can be done as late as September of NEXT year or upon filing the business’ tax return.
6: Was this year’s income lower than last year’s? Will next year’s income possibly be lower than this year’s?
- Consider a Roth IRA conversion by December 31st of this year or sometime in 2021, depending on income levels.
- Ask me more about this; there are important tax considerations.
7: “Tax loss selling”. Check with your financial adviser if there are investments in non-IRA accounts that have losses. These capital losses can be “realized” (meaning the investment is sold for a loss) and the losses used to offset the capital gains in a portfolio and can also be carried forward indefinitely. This selling needs to be done by December 31st. Check with your tax adviser!
8: If you inherited an Inherited IRA in 2019 (last year) then you most likely need to take an “RMD” (Required Minimum Distribution) from the IRA by December 31st of THIS year. Ask me about this one.
For all these items – and more – there is still time in 2020 to accomplish valuable tax-deductions or to create new savings vehicles beyond your imagination!
Please ask for additional ideas and strategies, especially for those who are self-employed or if income is much higher (or lower) than last year.
* Always consult with a CPA for tax advice and planning.