By Braid DeWeese
Many people will find that their income has fluctuated in some way in 2020, because of job loss, a change in hours, or a shift in your bonus and Covid-19 restrictions. The best place to start is with your latest paystub and see how your year-to-date column is shaping up compared to 2019.
If you find yourself under withheld, there are several things that you can do to help before tax time. One of the most common is making an additional contribution to your 401K up to the maximum $19,500 allowed. This additional contribution is a pretax contribution and grows tax deferred. There are also other things you can do based on your tax circumstances.
If you itemize you can further increase your deductions by taking last minute deductions:
- Making end of the year charitable donations by decluttering and donating to an approved nonprofit.
- Make your January mortgage payment before the end of the year as Mortgage interest paid in 2020 is deductible on your return.
- Sell investments performing at a loss to offset capital gains. You can offset capital gains you have made with these losses.
- Review your medical expenses to determine if they will exceed 7.5% of your adjusted gross income resulting in a medical expense deduction.
- Consider updating your withholding so future withholding is more appropriate. Generally, taxpayers must pay at least 90% of the current year’s tax owed or 100% of the tax liability from the prior year. Those with adjusted gross income over $150,000 must pay at least 110% of the prior year’s taxes owed. Fall short, and you are subject to penalties and interest.
If you own a business:
- Determine if there are any assets that you need to purchase before the end of the year that would be eligible for bonus or a 179-depreciation deduction.
- Making an additional employer retirement contribution to a qualified account that would assist in deferring current business income.
- Make sure you are keeping track of all your reasonable expenses so that you can take all the deductions you are entitled to.
- If your business received PPP funds, allow for the potential tax consequences of forgiveness of those funds.
If you have any questions or need additional assistance navigating the complex income tax regulations, Sackett Financial is available to help you at 714.671.9330.
Braid DeWeese graduated from the University of Utah with a bachelor’s degree in Economics. He then earned his Master of Business Administration at Cal State Fullerton. In 2009 Braid started at Sackett Financial Group and soon after earned his CPA license and certification as a valuation analyst, CVA. He is currently providing tax preparation, CFO services and business valuation services for Sackett Financial group clients.