12 Year-End Tax Tips for the 2020 Tax Year, from Jackson Hewitt
With weeks left in the year, the Tax Pros at Jackson Hewitt Tax Service created a list of year-end tax tips for the 2020 tax year.
Taxpayers still have time to make financial moves that could increase their tax refund or reduce the amount of tax owed.
To help taxpayers prepare to file their 2020 tax returns, the Tax Pros at Jackson Hewitt are sharing their 12 top year-end tips:
Home Office: Working from home doesn’t guarantee a home office deduction. The home office deduction is only available to those who are self-employed.
Stimulus: If a taxpayer received an Economic Impact Payment or stimulus check, they need to add their IRS Notice 1444 to the rest of their tax documents. If taxpayers threw away or lost their Notice 1444, taxpayers should look through their bank records to find the exact amount of stimulus money they received.
Unemployment: Unemployment payments are taxable, and withholding is voluntary. Taxpayers must request the withholding on their unemployment payments. If taxpayers did not request the withholding, they will likely owe tax on the unemployment benefits they received.
Some credits like the Earned Income Tax Credit or Child Tax Credit are based on earned income, but since unemployment pay is not considered earned income, this could impact certain credits that taxpayers are used to receiving.
Planning Ahead: Taxpayers can do a payroll checkup, make an estimated payment to cover their taxes when they file if needed, and start getting their tax records/expenses together.
Extra Time to Pay: The IRS has made it easier to pay taxes over time this year by allotting an extra 60 days (total of 180 days) for a short-term installment agreement.
Payroll Taxes: Following an Executive Order issued in August 2020, some taxpayers may have had their “take-home” (meaning “net”) pay increased due to their employers not collecting employee-side payroll taxes.
This order impacted taxpayers earning under $104,000 and applied to payroll taxes from Sept. 1 to Dec. 31.
But even though these taxes are not collected during this time, they must still be paid, and beginning in 2021, employers that were not collecting these taxes will start withholding additional payroll tax to pay back the 2020 taxes in addition to withholding 2021 payroll taxes.
This could result in significant changes to an employee’s regular take-home pay in 2021 compared with the end of 2020.
Student Loans: If taxpayers with student debt payments paid all their principal after March 13, 2020, there may be little or no interest to deduct for the student loan interest deduction.
Retirement contributions: Taxpayers can increase their retirement plan contribution through the end of the year. If taxpayers are able, they should consider investing in their future and putting extra money into their IRA or 401(k) accounts to maximize their allowable contributions. This is one of the easiest ways to decrease taxable income and create some self-generated tax breaks. Taxpayers have until April 2021 to contribute to an IRA to benefit their 2020 taxes.
Charitable donations: Most taxpayers will get a charitable donation deduction for 2020! Make a list of any donations made this year and locate any receipts. Whether itemizing or taking the standards deduction, under the CARES Act, taxpayers may be eligible to deduct up to $300 worth of monetary donations to qualified organizations.
Higher education: Taxpayers could pay their 2021 tuition early! Prepaying their early 2021 education expenses could count towards an education tax credit.
Homeownership: Taxpayers can pay their January mortgage before the end of the year and it will count for this year’s taxes.
FSA: Taxpayers with a Flexible Spending Account have until the end of the year to spend the remainder of their account. Some plans allow a bit longer, but it’s best to be safe and spend that money before year-end.
Find out more at www.jacksonhewitt.com.
Copyright Today’s Credit Unions