As tax and financial professionals, we encourage you not to wait until January to make your plans for 2021. There are many opportunities available for financial planning that can positively impact your 2021, but you need to seize them before the calendar changes. That’s good advice for any year, but with all of the change and new legislation in 2020, there are some extra considerations to take at the end of this year.
2020 Tax Changes for Individuals
- The CARES Act gave retirees the option to suspend required minimum distributions from their retirement accounts. If you took the distribution before the CARES Act passed, you also had the opportunity to return it without penalty. Your tax advisor can help you determine whether you made the right choice—depending on your situation, it may be advantageous to take the distribution anyway.
- Remember the SECURE Act? It brought sweeping changes to the rules for retirement accounts before anyone ever suspected it would be the year of wide-reaching legislative changes. If you didn’t update your retirement plans this year, it’s worth taking a look before the end of 2020.
- The CARES Act also created a $300 above-the-line deduction for charitable contributions in 2020. This means that even if you take the standard deduction, you can still deduct up to $300 donated to a qualified organization. If you do itemize, the cap of 60% of adjusted gross income was suspended in 2020. Consider whether you can make an impact on your favorite charity AND cut your tax bill.
2020 Tax Changes for Businesses
- Paycheck Protection Program loans won’t be treated like other forms of canceled debt. Under the COVID Relief Bill, business expenses paid with PPP funds will be allowed as deductions.
- Remember the flurry of news in the early fall about the President’s payroll tax deferral? The topic has dropped from the headlines, but if your business allowed employees to defer their payroll taxes, you’ll want to prepare to collect the deferred amounts starting in January.
- Businesses that are required to send 1099 forms to contractors will be subject to a new process this year. The IRS has introduced form 1099-NEC for reporting non-employee compensation (instead of using 1099-MISC). Further, if you have a contract that includes both equipment rental and operator expenses, those items must be separated. The machine expense is reported on form 1099-MISC, while the operator’s wages are reported on form 1099-NEC. Sign up now for our 1099 service, and we’ll make sure you stay compliant.
- Finally, don’t forget to pay your quarterly taxes. We offer a complimentary service that sends you an email reminder when quarterly tax payment deadlines are approaching. Sign up here.
How should you prepare for the upcoming tax season?
Don’t wait until the new year to review your tax situation. Taking the time to make tax moves before the end of the year is well worth the effort.