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Don't Miss Out on Year-End Tax Planning

While many of us may not want to look back on 2020, this year has opened up a number of possibilities when it comes to planning for your taxes. Congress passed several extensive laws to benefit individuals and businesses that have suffered hardship due to the Coronavirus. These laws have given more than your typical tax planning opportunities. While everyone’s situation is unique, below are some tax areas that may apply to your circumstances.

Did you skip your Required Minimum Distribution (RMD) for the current year?

You may remember us discussing this topic earlier in the year and the many times the law was changed for those taxpayers who are typically required to take minimum distributions. While the idea of not taking your RMD means you will be reporting less income for 2020, you should also consider how much of that RMD you typically paid in taxes and if those tax dollars helped to cover other income items that still exist. Many people use their RMD’s as a way to pay in the tax that may be associated with other income (interest, dividends, capital gains) and avoid having to pay estimated tax payments. If this is something you have done in the past, and are now opting to leave the funds in your retirement account, it may be worth making a payment before the end of the year, or in early January to minimize any penalty or interest that would be charged for underpayment of taxes on these other income sources.

Are you the charitable type?

This year has provided us with a number of ways to make contributions help us when it comes to taxes and benefit the organizations that mean the most to you. The AGI limitation (adjusted gross income) for deducting cash contributions has been increased significantly for 2020.  Since itemized deductions have become a thing of the past for many individuals, it often times makes sense to load all of your charitable contributions into one year in order to receive a tax benefit instead of making smaller donations over multiple years. With the AGI limitation increase, this will further benefit this approach. Additionally, for 2020, if you do not itemize, you will still be able to take an additional $300 deduction above your standard deduction for contributions that have been made. If you are over the age of 70½ you may also choose to make an IRA-to-qualified charity donation. This will help to reduce your necessary RMD’s for future years as well.

Have you prepaid enough tax for 2020?

This is one of the most important reasons for doing year-end tax planning. We can look to determine if the tax you’ve already paid in through withholding or estimated tax payments will be sufficient to cover your tax for the year, or at least cover you for any penalties or interest that would be assessed. If there is a shortfall, we can look at what options we have to reduce the tax, perhaps by increasing your retirement plan contributions or bunching deductions as mentioned previously, or increasing the withholding you are having taken from payroll or pension distributions through the end of the year.

At Hippo Tax Services our goal is to help provide a more proactive thought process when it comes to taxes. When you have questions about your taxes and implications of financial decisions to be made, we want to help provide the answers. Reach out to us in the upcoming weeks to schedule a time to talk about your tax situation.

The material contained in this article is for educational and informational purposes only.  The information herein is considered to be obtained from reference sources deemed reliable, but no representation or warranty is made as to its accuracy or completeness.  This article is not, and should not be regarded as “investment advice” or construed as a “recommendation” or an offer to buy or sell a security.  The information contained in this article may not apply to your personal circumstances.  Before making any decision or taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular situation.  Information on taxes is based on the tax laws existing at the time of publication.  Tax laws are subject to continual change.  In addition, tax laws vary by state.  This article is not, and should not be regarded as tax or legal advice.  We cannot ensure tax consequences of any transaction.  If you would like a detailed analysis of your tax situation, with specific tax recommendations, you can discuss the possibility of pursuing a formal relationship with Hippo Tax Services, LLC.