With the end of the year quickly approached, there is no better time than now to think about ways to lower your tax bill. As you plan for the end of the year, you will also be reflecting on how the pandemic has affected your business finances. There are several new tax rules that you will need to be considered before finalizing your taxes. The experts at Mark Dicus & Company have provided the following tax planning strategies for small businesses to help you formulate a plan that is most beneficial to your situation.
Offsetting Capital Gains with Business Losses
Capital gains from the sale of assets that have been held for a period over one year are taxed at 0%, 15%, or 20%, depending on the income bracket. Consider selling enough to generate long-term capital gains that can be taxed at the 0% rate. Mark Dicus & Company can advice you on whether your projected income will allow you to qualify for the lowest rate.
IRA Accounts & Retirement
Think about converting traditional IRA investments in mutual funds into ROTH IRA. The gains may not be immediate but will provide substantial tax benefits in the future as your distributions will be tax-free. If you are age 70 1/2 or older by the end of the year, you have traditional IRAs, especially if you cannot itemize your deductions, consider making 2020 charitable donations via qualified charitable distributions from your IRAs. On the other hand, suppose you are younger than age 70 1/2 at the end of the year. In that case, you anticipate that you will not itemize your deductions in later years when you are 70 1/2 or older and can make deductible IRA contributions, contribute the maximum amount allowed to one or all of your traditional IRAs in 2020. When you reach age 70 1/2, make your charitable donations through qualified charitable distributions from your IRA. This route will allow you to convert nondeductible philanthropic contributions that you make in the year you turn 70 1/2 and future years into deductible-in-2020 IRA contributions and will also help to reduce gross income from future year IRA distributions.
Itemized Deductions
Many taxpayers will find it difficult to itemize deductions due to the high standard deduction amounts that apply for 2020, as many of these deductions have either been reduced or no longer apply. For example, similar to previous years, a cap of no more than $10,000 of state taxes can be deducted. It is permissible to itemize medical expenses but only if they exceed 7-5% of your adjusted gross income. If your tax professional advises you to itemize your deductions, be sure to prepay your January mortgage along with any margin interest on your investments before the year-end. If you intend on making large charitable contributions, use long-term appreciated securities instead of cash. If you make a more considerable charitable contribution than usual, think about using long-term appreciated securities rather than cash. You will receive a charitable deduction equal to the asset’s fair market value, so you will never have to pay tax on the appreciation.
Tax Deferred Accounts
Think about increasing the amount deducted from next year’s Flexible Spending Account (FSA) if you feel that you may have set aside too little this year and you anticipate that your medical costs will increase next year. If you are eligible in December of this year to contribute to a health savings account (HAS), you can make a full year of deductions for 2020.
Tax Preparation, Filing, Resolution & More in Summerlin, North LV, Henderson, Lone Mountain Village & Greater Las Vegas, Nevada
These are just a few of the steps that you can take to reduce your 2020 tax bill. Contact the experts at Mark Dicus & Company to schedule your appointment to determine which tax-saving strategies are right for your circumstances.