I don’t think many of us will be very sad to wave adieu to 2020. But, as with any other year, it’s a good time to think about how to save on taxes before we ring in the New Year.
Here are some ideas to consider:
Making Charitable Donations
- Gifting appreciated assets to charity is a smart move for a few reasons. First, you might avoid paying capitals gains on the securities when you sell them. Second, if you itemize your deductions, you can get a tax deduction from your contribution. Third, the charity that you give the securities to will also benefit.
- As long as you’re 70 ½ or older, you can donate money directly from your IRA.
- If you’re turning 72 in 2021, consider waiting until after December 31 of this year to donate from your IRA for the 2020 tax year. If you also donate money out of your IRA in 2021 next year, these can qualify towards your required minimum distribution for 2021.
- For this year only, the CARES Act allows you to deduct cash gifts up to 100% of your adjusted gross income.
Selling Losing Investments
- If you sell an investment like a stock and take a loss, you might be able to save on some taxes. One caveat: don’t buy the same investment back within 30 days of selling it. If you do, you won’t be able to apply the loss from the sale to offset your taxes.
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Contributing to Qualified Savings Accounts
- If you have a flexible spending account (FSA), make sure to spend it down. Otherwise, your contributions to the FSA that weren’t spent will be considered taxable income.
- If you have a health savings account (HSA), you can contribute to it up until December 31, 2020 to reduce your taxable income for the year.
- If you have an employer-sponsored retirement plan, such as a 401(k), you must also make sure all contributions are made before December 31 to reduce your taxable income for 2020.
- If you have an IRA (traditional or Roth), you have a bit more leeway. You can contribute to your IRA up until April 15, 2021 and still reduce your tax burden for the 2020 tax year.
- If you contribute to a 529 college savings plan, you can reduce your state tax bill in more than 30 states. Most states have a deadline of December 31 for contributions to apply to that tax year. However, several have extended contribution deadlines of either April 15 or April 30 of the following year (Georgia, Iowa, Mississippi, Oklahoma, South Carolina and Wisconsin).
Looking for more ideas to reduce your tax bill this year? Our advisors can help. Click here to schedule a no-cost, no-obligation meeting.