2020 Year-End Planning for Individuals – Annual Reminders

Here are some annual reminders for year-end tax planning:

• Estimated Payments: Remember to make your 4^th Quarter Federal and State estimated tax payments (1/15/2021). Due to the new $10,000 itemized deduction limit for state and local taxes and the higher standard deduction, delaying payments to 2021 may be a desirable strategy.

•  Review Your Tax Withholdings: If you have not had enough withheld from your 2020 pay, or you have missed an estimated payment, you can opt to have more tax withheld from your paycheck before year end in order to cover this potentially costly mistake. If you are substantially under withheld you may want to consider an IRA distribution in December, having the distribution 100% paid to the IRS for withholding, and then rollback replacement funds within 60 days.

• Accelerate Deductions/Defer Income: Accelerating deductions such as your mortgage interest payment, deferring bonus income or delaying invoices into 2021 may help reduce your 2020 tax liability. However, this approach should be considered carefully if you expect to be in a higher tax bracket in 2021.

• Maximize Retirement Contributions: Wouldn’t you rather pay yourself than the government? Making the maximum allowable contributions for the year to your traditional IRA, SEP plans or 401(k) retirement accounts can help you accomplish this. The deadline for the 2020 tax year, for all types of IRA contributions and most SEP plans, is April 15^th, 2021.

•  Sell Your “Losers”: Don’t forget to offset any 2020 capital gains. Married taxpayers can take up to a $3,000 capital loss ($1,500 for single filers). Be careful to avoid “wash sale” rules by not buying the same stock within 30 days before or after the original sale; otherwise the losses won’t count.

For more information regarding year-end tax planning, please contact us at 404-255-7400 or info@hoffmanestateaw.com.