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As we’re all aware, 2020 has been an extraordinarily complex year — that complexity is reflected in taxpayers’ tax situations, whether they’re businesses or individuals. While there is plenty of time before this year’s tax returns need to be filed, the constantly changing economic situation, the presidential election, and the host of COVID-19 legislative provisions mean that some tax moves will only be effective if they’re made before the end of the year.

We’ve brought together some of our best year-end tax-planning coverage, ranging from reminders of classic strategies to deep dives into rules specific to COVID-19 tax relief. For each article, we’ve highlighted a strategy or two, but they all offer a host of potential tax savings — for those who act fast.

For businesses and individuals:

In early October, Top 10 Firm Grant Thornton put together a list, a mix of strategies for both companies and individual taxpayers, including:

Making sure to use the above-the-line charitable deduction
Accelerating AMT refunds
Taking advantage of new bonus depreciation rules from the CARES Act

New for the end of the year:

In an interview, Wolters Kluwer’s Mark Luscombe dives into some of the most important new year-end planning issues, including:

Employee tax credits and deferrals related to payroll taxes that expire at the end of 2020
Tax provisions that offer retroactive relief
The implementing expiration of the expanded ability to make penalty-free withdrawals from retirement plans

Expiring Relief:

With a number of COVID-19 related tax relief provisions, Laura Davison of Bloomberg News talks about how year-end planning has been turbocharged. Here are the provisions set to expire:

The removal of the cap on individuals’ business loss deductions
The one-time deduction for charitable gifts for taxpayers taking the standard deduction

Planning around the election:

Tax planners knew that the November election could have a major impact on year-end planning. Particularly, if a Biden win brought in a whole new approach to tax legislation. Accounting Today columnist Mark Luscombe, of Wolters Kluwer, offered strategies for both possible outcomes in Georgia, including:

With a Republic win, focusing more on tax-loss harvesting and less on Roth IRA conversions
With a Democratic win, preparing for the possibility of higher capital gains and income tax rates

Three-quarters of the way there:

In a column just before the election, Wolters Kluwer’s Mark Luscombe summarized the year-end planning developments thus far in the year including:

The restoration of NOL carrybacks for up to five years
A number of COVID related corrections and extensions to the Tax Cuts and Job Acts of 2017
COVID-19 sick leave and family leave, and employee retention provisions

Acceleration and declaration:

After a “year like no other” this early December list from AG FinTax’s Anil Grandhi included tips on lowering taxes by:

Accelerating business purchases
Adding children or spouses to the payroll
Deferring or accelerating income

From one year to another:

Not everything can be wrapped up by the end of the year. Accounting Today’s senior tax editor, Roger Russell, covers the issues from 2020 that will have an impact on 2021:

The tax impacts of remote work
How to handle emergency retirement plan withdrawals under the CARES Act
The taxability of unemployment benefits

In under the wire:

While many of them don’t need to be taken up by December 31st, the last-minute COVID relief legislation signed by President Trump included a number of tax provisions including:

Passage of a number of tax extenders
An extension of the Work Opportunity Tax Credit
Improvements to the Employee Retention Credit

Right now, you may be more concerned about your 2019 tax bill than you are about your 2020 tax situation. That’s understandable because your 2019 individual tax return is due to be filed in less than three months.

However, as Business Consultant we suggest that it’s a good idea to familiarize yourself with tax-related amounts that may have changed for 2020. For example, the amount of money you can put into a 401(k) plan has increased and you may want to start making contributions as early in the year as possible because retirement plan contributions will lower your taxable income.

Note: Not all tax figures are adjusted for inflation and even if they are, they may be unchanged or change only slightly each year due to low inflation. In addition, some tax amounts can only change with new tax legislation.

So below are some Q&As about tax-related figures for this year.

How much can I contribute to an IRA for 2020?

If you’re eligible, you can contribute $6,000 a year into a traditional or Roth IRA, up to 100% of your earned income. If you’re age 50 or older, you can make another $1,000 “catch up” contribution. (These amounts are the same as they were for 2019.)

I have a 401(k) plan through my job. How much can I contribute to it?

For 2020, you can contribute up to $19,500 (up from $19,000) to a 401(k) or 403(b) plan. You can make an additional $6,500 catch-up contribution if you’re age 50 or older.

I sometimes hire a babysitter and a cleaning person. Do I have to withhold and pay FICA tax on the amounts I pay them?

In 2020, the threshold when a domestic employer must withhold and pay FICA for babysitters, house cleaners, etc. is $2,200 (up from $2,100 in 2019).

How much do I have to earn in 2020 before I can stop paying Social Security on my salary?

The Social Security tax wage base is $137,700 for this year (up from $132,900 last year). That means that you don’t owe Social Security tax on amounts earned above that. (You must pay Medicare tax on all amounts that you earn.)

I didn’t qualify to itemize deductions on my last tax return. Will I qualify for 2020?

The Tax Cuts and Jobs Act eliminated the tax benefit of itemizing deductions for many people by increasing the standard deduction and reducing or eliminating various deductions. For 2020, the standard deduction amount is $24,800 for married couples filing jointly (up from $24,400). For single filers, the amount is $12,400 (up from $12,200) and for heads of households, it’s $18,650 (up from $18,350). So if the amount of your itemized deductions (such as charitable gifts and mortgage interest) are less than the applicable standard deduction amount, you won’t itemize for 2020.

How much can I give to one person without triggering a gift tax return in 2020?

The annual gift exclusion for 2020 is $15,000 and is unchanged from last year. This amount is only adjusted in $1,000 increments, so it typically only increases every few years.

Your tax picture

These are only some of the tax figures that may apply to you. For more information about your tax picture, or if you have questions, don’t hesitate to contact us.

Tag Archives: 2020 taxes

Top Year-End Tax Tips