With all of the changes we’ve experienced in 2020, we strongly recommend reviewing your tax documentation and other financial information before the end of the year. We conduct year-end tax planning meetings with many clients, and these give us the opportunity to look through the nuances of individual finances. However, there are certain points that come up again and again. Here’s our top ten list of the items you should review before December 31.
- Max out your retirement plan contributions for 2020. If you do not have a company retirement plan, we recommend maxing your IRA contributions. If you would like to examine the benefits and costs of additional retirement savings vehicles for your business, we are here to help.
- Maximize your health savings account (HSA) contribution for 2020 if you have a high-deductible health insurance plan. For 2020, you can contribute up to $7,100 for family coverage ($3,550 individual) in pre-tax dollars. Those who are age 55 or older can make an additional $1,000 catch-up contribution. HSA funds roll over each year if you don’t spend them and may earn interest, which is not taxable.
- Reimburse yourself for any business expenses paid personally as these are no longer deductible on your personal tax return. Some common business expenses include mileage, travel, meals, and cell phone. While you’re at it, review the Uncategorized Expense account in your accounting system and be sure to get these expenses categorized prior to year-end.
- For S-Corporation business owners, report amounts paid or reimbursed for your family’s health insurance to your payroll company before they finalize payroll for the year. This will be reported with your year-end W-2 and will result in the best deduction for 2020.
- Purchase any necessary business equipment and/or furniture to take advantage of Section 179 depreciation and bonus depreciation.
- Plan itemized deductions if you’re close to exceeding the standard deduction for the year ($24,800 for married and $12,400 for individuals). Strategies such as bunching property taxes and charitable contributions can help you take advantage of itemizing this year or next. Also, consider establishing a Donor Advised Fund if you are charitably inclined or would like to donate appreciated securities for charitable distributions in future years.
- Apply for Paycheck Protection Program (PPP) forgiveness if your business received those funds. We recommend submitting your application as soon as your financial institution allows you to do so.
- Pay enough estimated taxes to avoid underpayment penalties. The IRS rules surrounding estimated tax penalties vary depending on your income. The final quarterly estimated tax deadline for the year is January 15, 2021. If you would like our assistance calculating estimated tax to avoid penalties, please let us know.
- Update your business annual minutes each year. Include any business transaction outside of normal operations. Doing so will help maintain the liability protection afforded by your business entity.
- Review 2020 tax changes that may impact you. The past year brought a lot of tax changes, and not all of them were related to the pandemic. Review our list of 2020 tax changes for individuals and businesses.
Do you need assistance with year-end tax planning or getting 2021 started off on the right financial footing? Contact us to schedule a consultation.