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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

If you’re starting to fret about your 2019 tax bill, there’s good news — you may still have time to reduce your liability if you do your tax return preparation carefully. Three strategies are available that may help you cut your taxes before year-end, including:

1. Accelerate deductions/defer income. Certain tax deductions are claimed for the year of payment, such as the mortgage interest deduction. So, if you make your January 2020 payment this month, you can deduct the interest portion on your 2019 tax return (assuming you itemize).

Pushing income into the new year also will reduce your taxable income. If you’re expecting a bonus at work, for example, and you don’t want the income this year, ask if your employer can hold off on paying it until January. If you’re self-employed, you can delay your invoices until late in December to divert the revenue to 2020.

You shouldn’t pursue this approach if you expect to land in a higher tax bracket next year. Also, if you’re eligible for the qualified business income deduction for pass-through entities, you might reduce the amount of that deduction if you reduce your income.

2. Maximize your retirement contributions. What could be better than paying yourself instead of Uncle Sam? Federal tax law encourages individual taxpayers to make the maximum allowable contributions for the year to their retirement accounts, including traditional IRAs and SEP plans, 401(k)s and deferred annuities.

For 2019, you generally can contribute as much as $19,000 to 401(k)s and $6,000 for traditional IRAs. Self-employed individuals can contribute up to 25% of your net income (but no more than $56,000) to a SEP IRA.

3. Harvest your investment losses. Losing money on your investments has a bit of an upside — it gives you the opportunity to offset taxable gains. If you sell under-performing investments before the end of the year, you can offset gains realized this year on a dollar-for-dollar basis.

If you have more losses than gains, you generally can apply up to $3,000 of the excess to reduce your ordinary income. Any remaining losses are carried forward to future tax years.

We can help

The strategies described above are only a sampling of strategies that may be available. Contact us if you have questions about these or other methods for minimizing your tax liability for 2019.

Tag Archives: 2020

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