I’ve wanted to send an email update for a while, but our gov’t is so dysfunctional! No word on an additional stimulus. No word on tax law changes. No guidance on PPP or EIDL loans. Nothing definitive on tax law changes. Gah! But the end of 2020 approaches, and you can be sure the IRS will want their piece of flesh from us, so here’s our “heads up” reminders for taking care of your income tax issues with special notes.
- Donations – With the huge increase in the standard deduction, most taxpayers are no longer itemizing deductions. If you still are itemizing: Clean out your closets and get those bags to Salvation Army or Goodwill. Buy/donate toys to Goodwill, Toys for Tots, Salvation Army, or another recognized charity. Write checks to the charities near your heart. Whatever you do, KEEP THE RECEIPTS! Charitable donations have become a favorite audit item at IRS. For 2020 only, you can deduct $300 of charitable cash contributions even if you don’t itemize. It still has to be a designated charity and you need to keep the donation receipts.
- Flex-Spending Accounts – USE IT OR LOSE IT! Although the rules have loosened a bit with the new tax law, you still have to use up most of the money set aside from your paycheck for child care or medical expenses by the end of the year. The new tax rules give you the ability to roll-over $500 to your 2021 plan, but spend the rest or lose those set aside dollars. Many employers are giving large incentives to employees opting into HSA insurance plans this year, so if your annual healthcare costs are typically small, you should look into this option – lower premiums, more incentives, and tax-deductible medical costs!
- Capital Gains – The stock market was up big time this year! If you have profits to report for 2020, now is the time to get rid of a few losers. The reverse is also true: if you took a loss on shares earlier in the year, December is a great time to sell a couple of winners and offset the losses. Remember that you are limited to a maximum of $3,000 of capital loss in any one year, so if you had a stock that lost you $5,000, you can claim only $3,000 this year and have to carry the balance to next year’s return unless you also had a winner or two to reduce the loss.
- Self Employed – Businesses can invest up to $1 million in new equipment and write it all off in the year the equipment was bought AND PUT INTO SERVICE, so if you are going to buy that new piece of machinery before December 31, make sure you put it to business use by December 31. If you buy it and it gets delivered on January 2, it won’t help you on your 2020 tax return.
- Gifting – The annual gift tax limit for 2020 is $15,000 per person. If you and his Mom gave your son a car for graduation last May, I hope it cost less than $30,000!
- Required Minimum Distributions – People over age 70.5 (now 72) are normally required to take an RMD from their retirement accounts. If you weren’t 70.5 by December 31, 2019, the age for RMD has increased to 72. For 2020 only, you are exempt from having to take an RMD! If you don’t need the money now, leave it be!
- IRA Distributions – For 2020 only, you are exempt from the 10% penalty for early withdrawal from an IRA (because you are not over age 59.5). The distributions still count as taxable income, but you have the option to pay the tax without a penalty over the next 3 years instead of all this year.
- Plug-In Electric Vehicles – There’s a significant federal (and often state) tax credit for buying certain plug-in electric vehicles as well as installing the charging station in your home, but you have to put the vehicle in service before Dec 31 if you want the credit in 2020. You can get a really huge red Christmas bow at Amazon!
Don’t Get Hacked! The IRS will never contact you by phone or by email. THOSE CALLS AND EMAILS ARE SCAMS! There wouldn’t be so many of them if they weren’t successful. Guard your social security # and your bank account # as if it were gold, because it is. Ask for a phone number to call them back and then call us (we know all the IRS phone numbers). If they start threatening, just hang up!
As always, please feel free to call or email us if you have any tax related questions before tax season.