The year 2020 was a topsy-turvy year, financially, for most Americans. Some were able to continue working and earning with little or no interruption, while at the other end of the spectrum, some lost their livelihoods. Some were ineligible for unemployment and many others landed somewhere in between. Whatever your situation, this would be the year to start your tax preparation early with a virtual consultation and planning meeting.
Tax Actions You Can Take Now
While you can’t start filing taxes before the end of the year, we have plenty of free tax steps to do now that will help you position your personal and small business return to your maximum benefit before 2021.
- Call your CPA to plan – Remember, the pandemic triggered some changes that make this filing different than the previous one. You’ll need advice from your CPA before 2021 to decide what will work best for you tax-wise regarding:
- Limited Workplace Retirement Accounts were raised: 401K plans base contribution limits were increased by $500.
- Required Minimum Distribution: If you normally have to take a withdrawal, the 2020 Cares Act suspended this due to the pandemic.
- Earned Income Tax Credit limit raised: Regardless of filing jointly or married, your limits for income and maximum credits are higher.
- Payroll Tax raised cap: For Social Security, this raised to $137,700, partially to accommodate deferred payroll payments. Small businesses should certainly seek guidance as soon as possible.
- Contribute to your HSA – Contributions to your Health Savings Accounts are taken before taxes. That money becomes either tax-deductible or pretax, and can accumulate without being taxed. Additionally, when you use that accumulation for approved medical expenses, you pay no taxes on that withdrawal. Due to COVID-19, your HSA family coverage max increased by $100, and HSA self-coverage by $50. You can contribute up to the new limit for 2020 until April 2021, and even use leftover healthcare funds later during retirement.
- Side business deductions – Since most side-gigs are 1099 subcontracted, you’ll need to lower that income as much as possible by claiming ordinary and necessary business expenses as deductions.
- Give what you can – The CARES Act provides more incentive than ever this year to donate to public charities. You can, for the year 2020, deduct up to 100% of your Adjusted Gross Income (AGI) for these donations on your return if you choose to file with itemized deductions as opposed to using the Earned Income Tax Credit (EITC).
- Roth IRAs – If you lost income due to COVID-19 you might be able to convert your traditional IRA to a Roth IRA. The benefit is that you will not pay taxes on the eventual withdrawal like you would with the traditional one.
Stay well and keep in touch,
Charles Myrick and team
Especially with the uncertainty injected into a complicated and difficult financial year, we at Myrick CPA recommend that you contact an advisor to help sort out your 2020 tax filing. Don’t wait until April. Get in touch with us today!