It’s election wrap-up season, and with all of the noise in Washington and in some State Houses, it is the perfect cover and distraction from what legislation is happening and what ISN’T happening yet!
When politics is this noisy, it is easy to get fooled: fooled into “not knowing what to do” in varying scenarios and outcomes that might still be unknown.
But have no fear, The Rooney Slant is here to help guide you with some optional steps to save money on taxes and enhance your 20/20 tax vision for the year 2020.
WE WANT TO HELP YOU NAVIGATE THROUGH CHANGING TIMES, TAX LAWS AND CIRCUMSTANCES!
As a professional, I have seen many tough times in this country and experienced divisive politics, challenging election cycles, ever-changing TAX LEGISLATION, and Politician promises (some even kept) over 11 National Election Cycles and as many interim 2-Year cycles between.
However, Tax Planning in a changing landscape is NOT new to us.
The situation is a bit different each year, and the players are too, but our ability to help you navigate these changing waters will always be reliable, year after year.
Selected Tax Planning Topics
As to year-end 2020 tax planning, it is unlikely there will be any big tax law movements
(that are not already being considered / introduced) between now and the end of 2020, as there were so many already this current year.
So, the rules for this current year are largely set and planning can be done to get control of a majority of income tax exposures before December 31.
The following items serve as a summary of known “tried and true” steps that can help control income tax exposure for 2020 and possibly into year 2021 and beyond.
- Take advantage tax deferral / use of retirement plans: including maximizing employer 401(k) plan elective deferrals, which need be completed in 2020.
- Fund Health Savings Accounts via payroll deduction by 12/31/2020,
and other funding that can be done to H S A accounts due before 4/15/21 For year 2020). - Employing younger family members in your business on a part-time basis
(for bona fide work). This can be a way of pre-deducting higher education cost, etc. - Review your current rental property holdings if operating losses are suspended due to your income level, including revisit reason for owning it and timing to sell it.
- Restructuring “form vs. substance” of financial obligations in your business (a big difference in treatment for tax purposes and tax “basis” on LLC’s taxed as partnerships, vs. electing “S” corporations).
- Business asset purchases/timing, (size/weight in GVW terms for business vehicles) and other asset types. Both asset types can yield major front-side 2020 shelter from income tax with at least three (3) current options concerning how fast the tax write off occurs.
- Items that are new, but not as exciting:
- A) Income tax brackets have been adjusted for inflation – reduces exposure to tax on inflated dollars.
- B) Capital gains tax rates are affected by “ordinary income” tax rates, accordingly.
We have had clients in recent years with significant capital gains while having low ordinary income, who were pleasantly surprised by low tax return load! (Indexing for inflation is updated for year 2020 tax on net capital gains as well)
2020 / 2021 planning / options
- Required Minimum Distributions (sometimes abbreviated as “RMD”) from IRA’s, SEP-IRA’s and 401(k) accounts:
Most people are aware of distribution options and requirements from retirement plans when certain ages are attained. The CARES Act and the SECURE Act that passed in 2020 affect your options, including a one – term deferral of required minimum distributions in tax year 2020. But, in a “changing political and fiscal environment”, tax rates might rise in 2021, so consideration should be given (again) to whether the allowed deferral remains a good idea, especially if distributions risk being more heavily taxed after 2020.
Every situation is unique, so this needs to be analyzed a bit for your own situation. - Moderate amounts of interstate sales tax and filing are now the rule, as was expected, after the prior year “Wayfair” decision on sales tax for inter-state sales. Be aware that there may be personal liability to business owners who do not comply when sales exceed a threshold. Some states have no minimum filing thresholds, so a zero return is due for some, even if no taxable sales in the state (e.g. wholesale sales, may be exempt, but have to be reported).
- Did you forget / miss paying estimated tax payment vouchers (for tax on income with no withholding occurring)? For business owners, and others with direct influence on payroll / HR, adjust withholding upward to help cover this. Income tax withheld, such as from W-2 pay and 1099 retirement plan distributions, is considered ratably withheld evenly throughout a year, regardless of when withheld. This action may reduce estimated tax payment penalties if you are exposed in that area on your 1040 or state returns.
- Standard Deduction (in lieu of itemizing on Schedule “A”) for year 2020 is now $12,400 for single filers, $24,800 for married filing jointly, and $18,000 for Head of Household filers.
- Miscellaneous itemized deductions were largely ended starting in 2018, but recent tax law changes during 2020 carved some exceptions to the earlier elimination to these.
- Changes in 2020 and forward for 2021 occurred with energy conservation costs, with credits restricted mostly to renewable sources (solar panels and the like). Be careful!Check the updated tax rules before you buy if these affect your purchase decisions.
- Office in the home costs for either self-employed or entity business owners to be reimbursed for these in current tax year will need to use form 8829 as a sample worksheet. These can add up to very substantial deductions, reducing income tax and perhaps SE tax, so make sure to let us know if you have a home office!
- If you owed Arizona taxes last year, you may want to look into the large selection of Arizona state tax credits available on a dollar-for-dollar basis for 2020, many with some limits higher than in recent previous years. Call our office if you have questions.
- For retired clients taking plan distributions after achieving age 70 1/2, remember the option to make charitable contributions directly from the plan to your favorite 501 (c) (3) charity may be especially handy if you do not itemize deductions. This option can have a “back-door” effect of lowering tax on social security benefits, as well as making up for changes in inter-play between the Standard Deduction and Schedule A Itemizing.
- In general, be tax smart / alert and plan ahead of year end 2020. Give us a call today with any questions or to schedule a planning appointment.
This is just an abbreviated summary of tax changes and alerts affecting year 2020 and forward that could help your year-end tax planning actions. With three tax Acts in 2020 (and perhaps another before the end of this year), tax planning is crucial this year in order to take full advantage of all tax changes.
Call us today to schedule a planning appointment so we can run customized calculations for your unique situation. Our phone number is 520-888-3696, and email is fine as well. We look forward to helping you maximize your 2020 tax savings, especially since reducing tax outflow has the same net effect as increasing your income!
A quick reminder here too: we have a client portal for electronic receipt of intake information and delivery work product / tax returns to clients from our office to help during these Covid-19 times.
We look forward to hearing from you soon. Be safe and stay well!
© 2020 Thomas G. Rooney and AZ Southwest CPA Services, PLLC – All rights reserved
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