Last Minute and Ongoing Tax Tips for 2020
In the few weeks before Tax Day, you can still take some critical actions that can help optimize this year's tax return. Now is also a great time to plan ahead for next year.
The start of the year is an opportune time to look for ways to save and to understand how life changes affect what you owe. But even as you look ahead to the 2020 tax year, you still have time to take actions to lessen the bill on last year’s income, especially given the extended July 15th deadline.
The tips below will help you to optimize your returns for 2019 and to understand how your 2020 tax bill could be affected by things you do all year long.
Use the July 2020 Deadline for Deductions and Credits
Gather your receipts to add up potential deductions and credits. If you itemize, this could include deductions for medical expenses exceeding 7.5% of income; for state and local taxes up to $10,000; for charitable contributions; and for mortgage interest on up to $750,000 of mortgage debt (or $1 million if you borrowed prior to 15, 2018)
Always do the math to see if you’d be better off itemizing or claiming the standard deduction, though. It was up slightly from 2018 to 2019. rising $200 for singles and married filing separately; $400 for married joint filers; and $350 for those filing as head of household.
Not possible now, but plan for next year: Last minute IRA contributions
The contribution limit is $6,000 for those under 50 and $7,000 for those 50 and over who are eligible for catch-up contributions. If you haven’t maxed out this tax-advantaged retirement account by the end of the year and your income isn’t too high to qualify for deductible contributions, you may want to invest early in the following year. You have until April 15 (Tax Day) to contribute, or until October 15 if you file for an extension on your taxes. This April seems to still hold, despite 2020’s filing extension.
Tax Advice for the Rest of 2020 and Beyond
You now have plenty of time to make changes in 2020 to optimize your tax situation. Some of the steps you could take for the upcoming year include:
Find a CPA that’s right for you: While TurboTax works fine for those with simple filing situations, it may be time to graduate to a tax professional as your career advances or your finances get more complex. This can be especially important if you have business or investment income and want to make sure you’re taking advantage of opportunities to save.
Plan for life changes: Buying a home, getting married or divorced, paying your student loans, or having a child all affect your taxes.
- Marriage will change your filing status and, when you combine your incomes, your tax brackets could change too.
- Purchasing a new home could entitle you to claim a mortgage interest deduction, so you may need to switch to itemizing.
- Refinancing your home could mean you’re subject to the new cap on mortgage interest that may not have applied if you previously borrowed prior to December 15, 2017.
- Do you already own a home? You can receive tax credits for certain home improvements! Learn more by reading this article from Morty, an online mortgage broker.
Review changes to tax laws: The Tax Cuts and Jobs Act in 2017 ushered in major changes, including new caps on the deductibility of state and local taxes. Because these changes are fairly recent, it’s important that you and/or your CPA review how they’ll affect your tax liability each year. The law also introduced new tax cuts for businesses, including one providing opportunity to deduct as much as 20% of business income. If you’re working for yourself, talk with a CPA about this new tax break.
Plan your gifting strategically: In 2020, you can make tax-free gifts of up to $15,000 per recipient. You may wish to talk with parents and family members about strategic gifting if there’s a possibility estate taxes or inheritances taxes could be owed to state or local governments.
Keep records of temporary relocations (work from home/remote working due to Coronavirus): You may be temporarily staying in a different state than usual, and that could affect your tax liability for the year. Keep careful records so that you have all the information and documentation you need for when you file for 2020 next year.
By taking these key steps now, you can prepare for the tax year ahead while you still have ample opportunity to look for ways to reduce your total tax bill.
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