Hello friends,
I sincerely hope, you and your loved ones are safe and healthy as you read this. Now is the time to take action to avoid costly tax mistakes or leave money on the table. You should be using every opportunity to avoid unnecessary surprises as we approach the year end tax planning period. Here are some key considerations before year end:
- Temporary relocation out of state / country? Did you get stuck abroad or in another state within US during the pandemic? Review your residential status for federal and state purposes, which would dictate your tax liability and reporting requirements with the IRS and potentially with different states, especially those of us who have worked remotely from a state other than our home state.
- Payments to friends or family? Were you among the more fortunate and generous ones, who sent money to loved ones? - Consider reviewing gift tax reporting requirements.
- Charitable Deductions - Remember to claim a new $300 charitable deduction this year (even if you are not itemizing your deductions, but claiming a standard deduction) - Consider making an eligible charitable contribution before year end. Consider donating stocks that have significant tax advantages and have also generally appreciated this year
- Save for retirement and reduce taxes too –Tax payers can contribute upto $19,500 in a 401(k), other employer sponsored retirement plan plus $6,500 if you are 50 or older. If you are self employed, you can contribute even more: upto $57,000 to a solo 401(k) that can be made by April 15, 2021, but it should be opened by December 31
- Reduce tax bill on investments – This is a good time to offset losses from your underperforming investments against the gains from investments. This is particularly relevant for taxpayers who qualify for 0% capital gains rate, which applies to taxpayers earning capital gains below a certain threshold
- Reduce your taxes through your HSA - Do you have a high deductible health insurance plan? - Consider making a contribution towards Health Savings Account (“HSA”). Contributions of upto $7,100 can be made for a family plan. It is a terrific vehicle to keep aside pre-tax dollars and use them for eligible health expenses in the future. Although taxpayers have time till April 15, 2021, this is a good time to decide the amount you should keep away for HSA
- Cash Need? Do you need cash to support during these challenging times? - Consider withdrawing funds penalty free from certain retirement funds
- Significant Drop in Income? Did you move to a low tax state or have significantly reduced income? - Consider making a roth IRA conversion
- Change to Estimated Income? Did you underestimate your income? - Consider making up the shortfall through increased withholding or paying estimated taxes to avoid potential interest and penalties
- Tax Advantaged Savings Plans. Remember to fund your 529 plan - Certain states offer tax benefits towards contributions for funding a 529 education plan
- Utilize NOLs or Investment Losses Most Efficiently. For business owners, consider setting aside time with your tax advisors particularly given this is a unique year given the issues associated with PPP loans, utilizing NOLs and making a decision whether to carry back or carry forward, consider accelerating income or delaying deductions for cash basis tax payers.
Your tax situation is unique to you and with the partnership of a qualified tax advisor, there are several ways you can legally and ethically maximize your after-tax income. But it will require a conversation with a tax advisor who gets to know you and your situation. I would welcome the opportunity to have a confidential conversation around any of these topics, or anything else you might have on your mind.
Stay safe and best of luck for the rest of 2020! We’re here whenever you need us.
Contact us:
Email: shahid.khoja@skglobaltax.com | Tel : + 1 646 709 2673 | Website: skglobaltax.com