As the end of the year is approaching some financial and tax planning opportunities are closing. To help consider these moves before it is too late, here are some 2020 year-end tips.
- As money is tight this year for many people due to the pandemic taxpayers thinking about making a large charitable contribution have an excellent opportunity in 2020. Unlike other years where charitable gifts are limited by a percentage of adjusted gross income, charitable donations made in 2020 to qualifying organizations are 100% deductible.
- If you have a home-based business take this time to look at your year to date income statement. Now may be the right time to squeeze in any large business expenses you have been considering. By paying for qualified business expenses before the calendar turns to 2021, you will lower your taxable income for 2020.
- Those impacted by the pandemic who need money can take distributions from their Individual Retirement Account (IRA) up to $100,000 without penalty, and the income taxes that are due from that withdrawal can be spread over three years.
- Review your investment portfolio to realize any additional capital gains and losses for the year. If you find yourself with net losses for the year, it is important to know that you can only reduce your ordinary income by $3,000 for the year 2020. The remaining capital loss would then be carried forward into the next year. But if you expect to be in a higher tax bracket next year, those carryover losses may benefit you greater in 2021.
- If you are looking for ways to spread your wealth while reducing your estate tax exposure, don’t forget that you can give up to $15,000 to as many beneficiaries as you would like each year without paying a gift tax or decreasing your lifetime estate tax exclusion amount. With estate tax rules likely to change under a new administration this may be a great time for wealthy individuals to consider making these gifts.