It’s December! That means we are in the homestretch of 2020 and nearly time to close the books on another calendar tax year. Tax planning is really an on-going activity, but year-end is a great time to tackle some of the more mundane tasks related to filing taxes. Here are just a few tips to help you stay on top of your tax situation for 2020. Keep in mind, that to take advantage of many of the deductions mentioned, you need to itemize. With higher standard deductions, fewer people are itemizing these days.
- Complete any real estate transactions such as buying a home or refinancing. Remember, any transaction closed in 2020 may have some tax planning opportunities. For example, certain closing costs such as some real estate taxes and mortgage interest are deductible. Points paid to buy, build, or improve your primary residence should be deductible in the year paid. If the points are for a refinance, you may need to prorate the amount over the life of the mortgage. Keep in mind PMI (private mortgage insurance) if you put less than 20% down on a home purchase. PMI is once again a favorable deduction for 2020.
- SALT is still capped at $10,000. SALT stands for State and Local Taxes and was greatly reduced under the Tax Cut and Jobs Act of 2017. Think real estate taxes (as noted in the item above). Right now, deductibility of state and local taxes, including real estate, personal property, and state income or sales tax is capped at $10,000 per year through 2025 unless extended. Simplistically speaking, if your eligible annual real estate taxes on a home are $12,000 per year, you lose $2,000 worth of deduction due to the SALT cap.
- Charitable Giving was also affected by the TCJA. You can still deduct charitable contributions, but keep in mind that you need to give in excess of your standard deduction ($24,800 for MFJ & $12,400 for Single filers). If you are going to give, do so by the end of December.
- Start your tax preparation now! Create a tax folder and a designated tax space and start rounding up needed documents and tallying business expenses by category to make tax prep easier and faster. You don't have to do it all in one go, but each week through December tackle an item such as document gathering. Remember, you likely won't receive any W-2 or 1099 statements until late January or early February if they are mailed to you, but possibly earlier if electronic.
- Find a preparer now. If you don't have a tax preparer already, start seeking one out. Waiting until tax season is not a good time to select the best preparer. If you are going to go it alone, start reviewing online providers now and keep your eye out for promotions and sales by the large tax preparation providers.
Year-end is a busy time for many people with various holidays, fiscal year-end for many, and this year, dealing with adjustments due to the pandemic. Don't put off your year-end Money Do list items until the last week of December. Tackle a few tax items each week and it will help you be ready, feel like you are making progress, and hopefully reduce stress at filing time. If you have any questions or need more information, please reach out to me.
As an independent Certified Financial Planner™, I can help you with tax planning. Contact me and let’s get started! #talktometuesday #education #Hireaplanner #stressfree #tax #taxseason #filing #taxprep #taxpreparation