As calendar 2020 comes to an end there is still time to take some last minute actions to help reduce your tax liability. Due to COVID-19 many taxpayers may have under withheld taxes from sources such as unemployment benefits, “gig” work, sales of investments, or unplanned retirement account distributions. You can make 2020 estimated tax payments by January 15, 2021, to reduce or eliminate underpayment penalties. NOW is the time to determine whether sufficient taxes were withheld from your income.
There is still time to make deductible charitable contributions for 2020. The IRS estimates that almost 9 in 10 taxpayers now take the standard deduction. However, as part of the CARES Act people who take the standard deduction may also take a $300 “above-the-line” deduction for charitable donations made during 2020. CARES also raises the cap on charitable deductions for some taxpayers who itemize.
You may still be able to reduce your 2020 income by contributing to certain tax advantaged accounts. For example, traditional and SEP IRAs, allow you to deduct contributions on your 2020 return if made by April 15, 2021.
If estate taxes are a concern, properly gifting now may reduce the size of your estate when you die. For 2020 you can make tax free annual gifts up to $15,000 per recipient. Married couples each have a $15,000 gift-tax exclusion, for a total of $30,000. However, the annual exclusion doesn’t carry over from year to year, you must use it each year or lose it.
Some taxpayers may be able to defer income or accelerate deductions to reduce taxes in 2020. Done properly this can produce a lower tax burden. Deferring income may reduce taxable income this year. Moving deductions into this year may speed up your tax benefit and avoid the uncertainty of future changes in the tax law.
You should review your tax situation with a qualified professional and make any necessary changes while there is still time.
George J. Eigenhauser Jr. is an attorney at law, licensed in the state of California since 1979. He has served on the Winn Board of Directors and as CFA liaison to Winn for more than 10 years. His expertise in the area of wills, trusts and estate planning allows him to assist donors with planned giving decisions. He is also the legislative coordinator for the Cat Fanciers’ Association, Inc. and has served on the CFA board for 15 years.