While the extended tax deadline just passed, it is time to start thinking about your mid-year tax planning. With new laws in place, there are opportunities in 2020 that we haven’t had before, along with time tested tax reduction strategies. Here are a few things to think about.
Business Owners
- The deadline to apply for a Paycheck Protection Program loan was recently extended until early August, so if you qualify and haven’t applied, now is the time to do so. For more discussion on this program and its parameters, see this article.
- Are your company’s financials and books current? To do accurate tax planning, your financials definitely need to be in order. If you need help with this, let us know and we can help with your books then provide tax strategies too.
- If you experienced substantial business losses in 2018 or 2019, or expect to in 2020, we may want to amend those returns since the CARES Act changed how these losses and net operation losses (NOLs) are treated. There could be an opportunity to free up some previously paid taxes or reduce estimated tax payments.
- If you haven’t already, you may want to defer paying your employer match payroll taxes until December 31, 2020 as allowed under the CARES Act.
- If you have considered creating an employer-provided retirement plan for your employees, now may be a good time to do it. The SECURE Act created tax credits for new plans and increased windows for plan establishment.
Individuals
- Many people do not realize that unemployment benefits are taxable. If you have received unemployment this year, make sure you have withholding set up for these payments or set money aside yourself. A good rule of thumb is to withhold or set aside 1/3 of your payment for taxes.
- If you’ve taken advantage of a mortgage payment forbearance program under the CARES Act, keep in mind that your 2020 mortgage interest deduction will be less than normal. This can impact your taxable income, in some cases making the standard deduction a better option. If so, you may think about pushing other deductions such as charitable contributions into 2021.
- If your income will be significantly less this year and you’ve incurred unreimbursed, out-of-pocket medical costs, you may be able to claim an itemized deduction for medical expenses. This is especially true if you are paying medical costs both in 2020 and 2021 – you may want to see if you can pre-pay or move some of the payments into 2020. The reason for this is that the percentage of adjusted gross income (AGI) that medical expenses must exceed before they can be deducted rises from 7.5% in 2020 to 10% in 2021.
- The CARES Act made some adjustments for charitable contributions. If you claim the standard deduction, you can add up to $300 in charitable contributions for 2020. For those itemizing, cash charitable contributions can offset up to 100% of your AGI.
- Although the SECURE Act changed the required minimum distribution age to 72, the minimum age for making a qualified charitable distribution (QCD) was not changed and remains 70½. Therefore, it’s now possible to make QCDs one or two years before taking RMDs. QCDs are allowable up to $100,000 annually. For individuals with substantial assets and little or no need for a related tax deduction, a QCD may be an appropriate strategy for supporting charitable organizations.
This is just scratching the surface of the opportunities available to you, so please don’t hesitate to reach out if you have questions regarding these ideas and the best options for your specific situation. I bit of planning now can save you a lot on your taxes next year!