As 2020 comes to a close, the following are tax tips and reminders to consider before year-end. If you have any questions or would like to discuss further, please contact our office at 617-424-1100. Wishing you, family & friends a healthy and happy holiday season.
Charitable Contributions
The CARES Act enhances tax incentives for making charitable contributions for the 2020 tax year. First, it allows an above-the-line deduction of up to $300 for charitable contributions made by individuals who take the standard deduction. Additionally, individuals who itemized their deductions can receive a current-year tax deduction for cash donations up to 100% of their adjusted gross income (AGI) - up from 60% of AGI. Stock donations or gifts to donor-advised funds and private foundations are still tax deductible but are not eligible for the 100% AGI limitation. In the case of corporations, the usual 10% AGI limitation is increased to 25% for the 2020 tax year.
Bunching Charitable Gifts
If you make annual charitable gifts but generally don't have itemized deductions over the standard deduction, you should consider bunching multiple years of charitable gifts into a single year. Since the passage of the Tax Cuts and Jobs Act, many individuals do not have sufficient itemized deductions to exceed the standard deduction. Bunching multiple years of charitable gifts may allow you to exceed the increased standard deduction and therefore maximize your charitable income tax deduction.
Required Minimum Distribution (RMD)
Under the SECURE Act, anyone turning age 70 1/2 in 2020 and beyond, their first required minimum distribution (RMD) from their retirement accounts will not be mandated until age 72. For anyone who is 70 1/2 before December 31, 2019, the RMD rules have not changed. Additionally, the tax year 2020 RMDs are not required but can be taken if you choose to do so. IRA account holders over age 70 1/2, during 2020, may still make distributions directly to charities of up to $100,000.
Capital Losses
Check-in with your investment advisor to determine if there are capital losses to take before year-end.
Avoid Penalties
Verify that you have enough taxes paid in by December 31, 2020, to avoid paying any penalties or interest. You can do this either through your payroll tax withholdings by December 31, 2020, or with a fourth-quarter estimated tax payment which is due by January 15, 2021.
Gifting Exclusions
The annual gifting exclusion for the tax year 2020 remains at $15,000 per person. Any gifts should be made by December 31, 2020.
Paycheck Protection Program (PPP)
If the SBA forgives a taxpayer’s PPP loan, the amount of the loan is then excluded from gross income. Taxpayers need to be aware that as the rules currently stand, the IRS has determined that those who have their PPP loans forgiven may not deduct any business or interest expenses paid with their forgiven PPP loan dollars.
