“When you know better, you do better.” -Maya Angelou
Ah, November. Cool weather, Thanksgiving, football. Even though 2020 still seems to be chugging along in all of its particular form of glory, we can at least get productive and distract ourselves from the political war games by making a positive impact on our financial world. Although, in Utah, Governor Gary Herbert is making Thanksgiving plans by Skype video.
Here are some things to consider as you do:
1) Look ahead to 2021. By that, I mean: what will your income potentially look like in 2021? For some, ANY income after a very rough 2020 would be welcome. But once you have that landed ... should I accelerate possible 2021 income into 2020 for tax reasons? Because the best of both tax worlds is to reduce your taxes in both years.
So take a look to see what you think your income will be looking like by the end of this year (including any investment year-end payouts, gig work, gambling winnings, etc. ) and what you expect it to be in 2021 (more, less or about the same). Next, check out the tax brackets and evaluate whether you need to defer current taxable income or accelerate write-offs into 2021 or vice versa. Keep more take-home through proper planning!
2) Adjust your withholding. By now, you should be able to look at what your income will most likely be by year-end, and you can keep more of it in your pocket instead of "loaning" it to Uncle Sam via withholding, and getting it back via refund. Conversely, you can make sure you don't get slapped by a bill. (Remember, unemployment compensation is usually taxable.)
3) If you have one, spend down your Health Flexible Spending Account (FSA). These are usually offered through big organizations and companies, and can be a very nice benefit. They set aside pre-tax dollars that you can spend on medical expenses that aren't covered by your insurance. But they have one big drawback: you have to use up all of it by the end of the benefits year, which is Dec. 31 for most companies, or you'll lose them.
4) Give to charity. Did you know the CARES Act enables you to deduct up to $300 in donations, even if you take the standard deduction? I'll have more to say about this in future weeks, but it's a great idea to get in this habit, and hopefully you are able to give much more.
5) If you have the means, give tax-favored gifts to your family. This really is for those who are in retirement, and who have socked away a fair amount. You can give $15,000 per person in 2020 and in 2021 each tax year without paying gift tax or tapping your lifetime estate and gift tax exemption. Your spouse can do the same, even to the same person. But again ... use this clause or lose it forever after 12/31.
6) Max out any workplace retirement accounts. Like 401(k)'s -- that deadline is 12/31. Regular IRA and Roth IRA's can be added to even up to 4/15/21.
7) Collect any virtual currency documentation. New this year, the IRS is asking people on PAGE ONE of the 1040 whether you had any such transactions, etc.
Yes, that stuff can be more secure and a form of investment ... but it ain't tax free.
To your (extended) family's lasting financial and emotional peace...
BE THE ROAR not the echo®
Warmly,
Janet Behm
Utah Real Estate Accountants
(801) 278-2700