We hope everyone is enjoying the holiday season and is staying warm! This week, we have some information about year-end tax planning for individuals and businesses, information about a great charity, and news about the COVID-19 vaccine roll-out.
First, taxes. For most people, this is not our favorite word. Still, it’s critical to plan for the end of the year so you can make the best decisions for yourself now.
The key to any year-end planning strategy is to minimize taxes by reducing the amount of income received or increasing deductions.
Maximizing deductions can be tricky. The standard deductions are high this year, so for many people, taking the time to itemize won’t be worth it. One of the best ways to maximize deductions is to develop a bunching strategy, which involves accumulating charitable contributions or medical expenses from two or more years into one year. For example, a taxpayer may make no charitable contributions in 2019 and double their typical donation in 2020 to maximize impact. The CARES Act allows an above-the-line charitable contribution deduction up to $300 for individuals who do not itemize deductions for 2020 only. This deduction applies regardless of income level. Alternatively, you may want to consider scheduling several non-emergency medical procedures in one year instead of spacing them out. This will apply for 2020 and 2021.
A few other strategies include maximizing education credits and deductions or teacher deductions and increasing 401(k) contributions or IRA contributions.
For business owners, depreciation and expenses are essential to consider at the end of the year. The Tax Cuts and Jobs Act (TCJA) provided generous depreciation and expensing limitations. Business owners may want to take advantage of the 100% first-year depreciation on machinery and equipment purchased during the year.
Additionally, the CARES Act corrected a longstanding error in the prior Tax Cuts and Jobs Act by categorizing qualified improvement property as 15-year recovery property. This effective date is for property placed in service after 2017, so it is retroactive for 2018 and 2019. If you want to take advantage of the retroactive nature of this provision, there are specific rules relating to amending returns and accounting method changes to follow, so give us a call, and we’ll make sure you’re on the right track.
Something to keep in mind if you are a business owner is charitable contributions and the business interest deduction limitation. The CARES Act increased the limitations on corporations’ deductions for charitable contributions from 10% of taxable income to 25%. This deduction is for 2020 only.
A few weeks ago, we wrote about how to pick charities to donate to, and we wanted to bring your attention to one small charity that’s making a big splash. Caitlin Gooch started Saddle Up and Read because she saw that children in her area were underperforming in literacy. Caitlin is an equestrian and realized that horses might be a great incentive to get kids reading. She works with libraries, youth groups, schools, and other community organizations to get kids excited about reading by bringing her mini pony and a trailer full of books and holding events.
Over the past two weeks, Caitlin has been retweeted by Oprah, LeVar Burton, and numerous equestrian celebrities covered in CNN, the Today Show, and more. If you’re interested in making a donation to a literacy organization where 100% of the donations go to the charity, check out Saddle Up and Read.
Finally, we have exciting news of the COVID-19 vaccine: it’s here! Some healthcare workers are already getting their vaccinations in the USA. If you are wondering where you are on the list, you can check out the New York Times vaccine calculator.
This effective vaccine is excellent news for the economy and people. Not only will people be able to gather with friends and family again, we can eventually return to eating in restaurants and supporting local small businesses without fear of catching or spreading the disease. Plus, air travel, concerts, movies, and many other routine events of daily life will become possible for many more people.
If you have questions about the COVID vaccine, check out the Mayo Clinic’s round up of frequently asked questions.
Past performance is no guarantee of future results. Securities offered through Triad Advisors, member FINRA/SIPC. Advisory Services offered through Obsidian Personal Planning Solutions, LLC. Obsidian Personal Planning Solutions, LLC, and Obsidian Personal Planning Solutions, Inc, are not affiliated with Triad Advisors.