Although everyone’s financial and life situation is unique, the following are examples of tax opportunities and strategies that may be helpful to lower your overall tax burden. Individual taxpayers, please consider:
No. 1 Tip: Have You Prepaid Enough Tax for 2020?
One of the reasons for doing year-end tax planning is to determine if the tax you’ve already paid through withholding or estimated tax payments will be sufficient to cover your tax for the year, in order to avoid a penalty for underpayment of estimated tax.
If there’s a shortfall, we can then see what appropriate steps you can take either to reduce the tax, perhaps by harvesting investment losses, bunching deductions, or increasing your retirement plan contributions (one of the simplest ways to lower your burden).
Because proper withholding has been so confusing, the IRS has developed a paycheck checkup.
Did You Collect Unemployment Income This Year?
If you did, you should be aware that it is taxable for federal purposes and that most states also tax unemployment benefits. Even if you had taxes withheld from the unemployment payments, don’t be misled into thinking it will be enough. Generally, the tax withheld from unemployment compensation is insufficient, especially when the extra $600 weekly amount of federal pandemic benefits is considered. It may be appropriate to see what effects the unemployment income will have on your taxes and avoid any unpleasant surprises next year when your return is prepared.
Did You Have a Large Increase in Income This Year?
If so, you might want to explore the benefits of a donor-advised fund, which will allow you to make a large deductible charitable contribution this year and meet your future charitable obligations by distributing the funds in the upcoming years.
Did You Suffer a Disaster Loss in 2020?
There are special rules related to evaluating the losses incurred as the result of a disaster loss, and the results more than likely will be quite different from what you might imagine.
Moskowitz Tax Law can help you with insurance claims, determine your loss for tax purposes, and provide guidance to maximize your tax benefits. Our Moskowitz LLP tax law blog has several articles relating to some of the California wildfires, though be sure to note that the tax concept encompasses federally declared disasters.
Congress Extended Tax Benefits that Expired after 2017.
Some of those benefits may apply to you for 2020. Or, you can amend your returns for 2018 and 2019, as appropriate, to take advantage of the following extenders: forgiveness of qualified principal residence debt income; deduction of mortgage insurance premiums; credit for energy-efficient home improvements; and credits for fuel cell vehicles, two-wheeled electric vehicles, and alternative-fuel refueling property. If any of these apply to you, you might consult with this firm to see if the benefits warrant filing an amended return.
Did You Sell Your Home This Year?
If so, and if you meet the ownership and occupancy tests, the gain from selling your main home will not be taxed, up to $250,000 ($500,000 if you file a joint return with your spouse). But if you don’t meet the requirements of both owning and using your home for 2 years in the 5 years counting back from the sale date, you may still qualify for a partial home sale gain exclusion. For example, you may qualify for a reduced exclusion if you sold your home to relocate this year because of a change in employment or due to health. We can determine the amounts of excluded income and taxable gain, and project how your taxes will be impacted.
Did you leave California this year?
If so, it is important that you consider taking the time to clearly document and ensure that you have cut all ties with California. California is actively pursuing residency audits. You want to be sure that you will prevail if faced with a California residency tax audit. Our office can provide you with a California Exit Tax Plan to provide you with the steps you should take to break residency this year.
Our attorneys and accountants spend each year, every year, cleaning up back tax and accounting messes and lowering our client’s tax burden through realistic and practical tax planning for individuals.
Moskowitz LLP is a tax law and accounting firm that has dedicated over 30 years to representing individuals and businesses with civil and criminal tax problems, cleaning up accounting and tax messes, and providing estate planning, and tax and accounting advisory services.
Remember a blog post or email blast is not a substitution for obtaining personal legal and tax consultation. This information is not intended to be legal or tax advice nor does it form an attorney-client relationship between us.