6 Questions to ask your Tax Adviser before Dec. 31
1. Based on my age, work status and estimated taxable income in 2020 as well as my projected taxable income in 2021 what steps should I take before the end of this year to avoid a tax shock in 2021 or 2022?
2. Is it worth my time (and money) to itemize my tax 2020 deductions rather than just take a standard deduction? What can I deduct?
3. Are there work- or business-related expenses worth itemizing.
4. When it comes to estate planning, are there steps I should take now while interest rates are low, and estate (death) taxes are unchanged?
5. Should I make a deductible charitable contribution this year to lower my taxable income?
6. If I operate a business, should I file a tentative refund claim on my taxes before Dec. 31, 2020? Can I claim “disaster” losses attributable to a Covid-19 shutdown? How should I handle the deferred worker payroll taxes related to Social Security?
BY JULIA ANDERSON
If there ever was a year when consulting with a tax accountant is a good idea, this is the year!
With the Covid-19 crisis and resulting economic turmoil, taxpayers of all ages may need help in navigating 2020 tax strategies by Dec. 31. Seniors, especially, might benefit. The goal: Make sure you are paying just your fair share, no more, no less.
Remember, you will pay taxes in April 2021 on income you earned in 2020. While there are no major changes in tax law for 2020, there have been smaller adjustments. However, “emergency” provisions intended to stimulate the economy also may be a factor in your yearend planning.
Now is the time to figure out where you stand tax-wise and where you are going in 2021 and beyond with taxable income, deductions, retirement, and estate planning and (maybe) business losses.
Tax regulations worth mentioning:
In 2020, The federal CARES Act allows eligible individuals to withdraw up to $100,000 from qualified retirement plans during 2020 without incurring the 10 percent early distribution penalty. Income taxes on the distribution can be spread over three years.
Those who received stimulus checks do NOT have to pay income tax on the money.
Seniors, over 72 are NOT required to take taxable withdrawals (RMDs) from their Individual Retirement Accounts this year.
Seniors can sell their primary residence and avoid capital gains taxes on the net gain up to $500,000 for a married couple. (Check the details)
Income tax brackets changed this year with a higher standard deduction: $12,200 for singles, $24,400 for married couples filing jointly.
After age 50, people can contribute up to $26,000 a year to a qualified retirement account to catch-up on retirement savings. If you have a job and can make the contributions, do it.
What about tax credits (and refunds)? You may qualify for a child tax credit or credit for other dependents. You may qualify for an earned income tax credit or a retirement contribution savings credit, or a lifetime learning tax credit. Ask a tax expert about these options.
Should you itemize? This may be the year to itemize your tax deductions. That means NOT taking the standard deduction but instead adding up various deductibles and then subtracting them from your gross income. For instance:
Those working from a home office can deduct the related costs.
You can deduct the mortgage interest you have paid a lender.
You can deduct charitable donations made to qualified charities, just make sure you have the documentation.
If you own stock, dividends that certain stocks pay qualify for a lower tax rate. You also can deduct a loss on a stock sold at less than what you paid for it if you have owned it more than a year.
You can deduct your estimated state and local sales taxes you paid this year as well as property taxes.
Seniors can gift up to $15,000 without reporting or paying tax.
Do you have a will? Is this the year you write a will spelling out how you want your assets distributed at your death. With the threat of Covid-19 hanging over us, having a will seems essential.
Many of us don’t think about federal income taxes until about April 15 when we have to pay them, but now (before the end of December) is the best time to develop a “tax strategy” that could save you hundreds, if not thousands of dollars in taxes, over the next several years. There is plenty of tax information on the internet. Study up on tax basics, then get outside help. One hour with a tax consultant likely will pay for itself in the tax savings you will earn.
Famous Quote: "Congress can raise taxes because it can persuade a sizable fraction of the populace that somebody else will pay." - Milton Friedman (1912-2006) American Nobel Prize-winning economist.
I meet women all the time who face job and money transitions and who want to do them right. It’s about building confidence and taking charge of the future. This is your money. No one cares more than you do!
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