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Bsquared 2020 End of Year Smart Money Guide

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We can see the light at the end of 2020, but for business owners and investors, that means it’s time to maximize tax benefits before the year officially ends. We’ve created this guide to help you make smart money choices for the rest of this year, plus plan for changes that may be on the horizon for 2021.

The top 5 things you should consider in Q4

Current 2020 tax brackets, itemized deduction limits, and standard deductions may change in 2021 under the Biden administration. Manage your investments, retirement contributions, and business expenses with that in mind to make sure you don’t miss out on any opportunities, this year or next.

Defer some purchases if you’re taking the standard deduction. The current tax plan has a high standard deduction but doesn’t allow for itemizing. With a possible decrease in the standard deduction on tap for 2021, it might be smart to save some big-ticket purchases, donations, or investments for next year and get full credit for those deductions in 2021.

Buy now if you itemize. If the standard deduction doesn’t apply to you, this year might be a better bet for any out-of-pocket purchases like major medical expenses, donations, home improvements, property and estimated taxes, etc.  If you’re a business owner, business purchases such as equipment, vehicles, business travel, or computers should be purchased now to balance 2020 profit and loss ledgers.

Invest as much as possible in your retirement funds. Your goal is to hit your highest possible contribution in 2020 if you can, and caps are $500 higher in 2020 than in previous years. You’ll thank yourself for the tax relief now and the fully funded retirement later! Also, the SECURE Act and some facets of the CARES Act address retirement disbursements, provide for deferred required minimum distributions for some seniors, and lower penalties for early payouts in specific circumstances such as adoption. Make sure you understand how to get the most out of your retirement investments this year, with the expectation that 2020 tax rule changes may not be renewed in 2021.

Consider filing an extension if you took a PPP disbursement. It may be well into 2021 before the SBA renders a decision on forgiving this CARES Act funding, since most forgiveness applications aren’t available yet. Forgiveness will have a huge impact on your 2020 tax filing, so it might be a good idea to plan for an extension to allow time for that decision.

Consider the applicability of quarterly tax payments next year. Protective quarterly tax payments are based on 110% of the previous year’s federal tax reporting, but that may not be the best approach in 2021 given all the upheaval and potential losses in 2020. Make that decision with your tax preparer, but consider those payments within the context of actual cash flow moving into the new year.

The 2020 tax filing prep checklist

Start locating and organizing paperwork and documents your tax preparer will need early next year:

  • COVID stimulus records and eligibility information
  • PPP and EIDL funding information as well as related expenses
  • Unemployment documents
  • Picture ID
  • Itemized deductions to include mortgage statements especially if you refinanced through a new bank
  • W2, 1099 and investment forms
  • Business bank statements, etc to include income and expenses
  • Asset data
  • Mileage data
  • Depreciation schedules
  • Direct deposit or payment information
  • Marketplace forms

The most important task on your to-do list is, “Don’t panic.” And, don’t feel like you have to tackle these overwhelming lists alone. While considering what to do with your money to get the most out of it in 2020 and prepare for federal income tax filing, schedule a call with Lisa at Bsquared. She will make sure your to-do list gets done and you don’t miss a single tax-savings opportunity.