End of Year Tax Tips
Act now to increase your tax breaks we approach the end of 2020.
Tax season is right around the corner. It is the perfect time to re-evaluate your finances for 2020 and see what tax breaks you can still take advantage of. There are quite few ways to save on taxes and we have listed a few that you might be able to take advantage of before the end of the year.
Contributing to a tax deferred retirement plan is a great way to lower your taxable income. There are several plans that you can contribute to that fall in this category.
For 2020 you can make contributions to 401(k)s and 403(b)s until December 31. IRAs and some other plans will allow contributions until April 16, 2021.
If you don’t use all of the money in your flexible spending account, you will lose it. Here are some ideas on what you can use the remainder of your funds on, if you still have money available.
- New prescription glasses or contact lenses
- Hearing Aids
- Medications for 2021
- Yearly appointments (if done by December 31)
Check with your plan administrator for a complete list approved expenses for this plan. Some plans also allow you an extra 2-1/2 months after the end of the year to use the money from the previous year.
The Tax Cuts and Jobs Act of 2017 close to doubled the standard deduction to $12,400 for single taxpayers and $24,800 for married couples filing jointly. This act also capped state and location deductions at $10,000 and eliminated miscellaneous deductions.
This can make it challenging to itemize deductions unless one had a notable amount of charitable donations. Bunching two years of contributions into a single year is an option that would allow someone to declare an itemized deduction every other year. If you think you are close to being able to itemize deductions for the year, donate to a charity by December 31. Do not forget to get a receipt.
You can deduct up to $3,000 on federal taxes if you have sold stocks at a loss during the year. This can either be applied to regular income tax or be used to negate other stocks.
Be aware of the wash-sale rule, which could exclude you from receiving the deduction. This rule does not allow the investor to take the deduction if they purchase the same or similar stock within 30 days (before or after the sale date) of the stock that they sold at a loss.
There is still plenty of time to take advantage of tax savings for 2020. Whether it be starting a new IRA, contributing more to your 401(k), using up the funds in your Flexible Spending Account or selling some stocks at a loss. Just make a plan and follow through. Contact your tax advisor if you have questions on what might be right for you.