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7 Eleventh-Hour Tax Strategies for Individuals
November 13, 2020
Another year is right around the corner, but there’s still time to cut your 2020 tax bill. Here are seven last-minute tax strategies to consider at the end of this tumultuous year:
- Donate to charity. Generally, itemizers can deduct cash contributions to qualified charities, subject to an annual limit. Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the limit is 100% of adjusted gross income (AGI), increased from 60%, for donations made by December 31, 2020 — even if you contribute online and pay later. Note: Nonitemizers can deduct up to $300 of cash contributions.
- Harvest capital losses. If you have losses in your portfolio, consider whether to sell before year end. You may use capital losses to offset your capital gains — plus up to $3,000 of higher-taxed ordinary income. Any excess is carried over to next year. Conversely, depending on your situation, you might realize capital gains to absorb prior losses. Note: Long-term capital gains generally receive preferential tax treatment.
- Boost 401(k) contributions. By adding to your 401(k) plan, you can feather your retirement nest egg while lowering your current tax bill. For 2020, you can defer up to $19,500 of pay on a pretax basis ($26,000 if you’re age 50 or older).
- Schedule doctor and dentist appointments. For 2020, you can deduct unreimbursed medical expenses above 7.5% of AGI, but this threshold is scheduled to increase to 10% in 2021. If you’re at or over the threshold this year, consider arranging eye doctor and dentist visits in December. Note: The deduction isn’t available for cosmetic expenses.
- Pay next semester’s tuition. Typically, parents of college students can claim a higher education credit or a tuition deduction, subject to a phaseout based on modified adjusted gross income (MAGI). If you qualify, you might pay next semester’s tuition in December to reduce your 2020 taxes.
- Adjust income tax withholding. Be aware you may owe interest and penalties — on top of regular income tax — if you don’t pay enough tax in 2020 through any combination of withholding and quarterly installments.
- Make an emergency IRA withdrawal. If you’re short on funds due to the COVID-19 pandemic, you might want to tap your IRA. Generally, IRA withdrawals before age 59½ are subject to a 10% tax penalty, on top of regular income tax, but the CARES Act creates a penalty exception for COVID-19–related withdrawals of up to $100,000 in 2020. Note: This reduces your retirement savings, so consider it carefully.
More tax strategies may be available. Your financial advisor can clue you in to the best approaches for your specific situation.
This material is generic in nature. Before relying on the material in any important matter, users should note date of publication and carefully evaluate its accuracy, currency, completeness, and relevance for their purposes, and should obtain any appropriate professional advice relevant to their particular circumstances.
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The Corporate Transparency Act (CTA) which took effect on January 1, 2024 required "reporting companies" in the United States to disclose information about their beneficial owners to the Treasury Department's Financial Crimes Enforcement Network (FinCEN). In May 2024, a lawsuit was filed claiming that Congress exceeded its authority under the Constitution in passing the CTA. Background: December 3, 2024 in the Texas Top Cop Shop, Inc., et al. v. Merrick Garland, Attorney General of the United States, et al., Judge Amos Mazzant of the United States District Court (Eastern District of Texas/Sherman Division) issued a preliminary nationwide injunction barring the enforcement of the Corporate Transparency Act (CTA). December 23, 2024 the Nationwide Injunction is lifted and filing deadlines are reinstated. Financial Crimes Enforcement Network of the U.S. Department of Treasury (FinCEN) may again enforce the CTA. FinCEN has not extended any filing deadlines. Therefore, all reporting companies should file immediately any beneficial ownership information reports (BOIRs) that were already due, and reporting companies formed prior to 2024 should file their BOIRs by January 13, 2025 (extended from January 1, 2025). December 27, 2024 the federal appeals court on Thursday reinstated a nationwide injuction halting enforcement of beneficial ownership information (BOI) reporting requirements, reversing an order the same court issued earlier this week. FinCEN issued an updated alert on its BOI information page , saying that companies can voluntarily submit BOI reports. February 7, 2025 FinCEN will consider changes to the BOI reporting requirements if a court grants the government's request for a stay of a nationwide injunction in a Texas case, according to a motion filed Wednesday, February 5th. If the stay is granted, FinCEN will extend BOI filing deadlines for 30 days, the government said in its filing in Samantha Smith and Robert Means v. U.S. Department of the Treasury, No. 6:24-CV-336 (E.D. Texas 1/7/25). BOI reporting is currently voluntary, pending further legal developments. Businesses and stakeholders should stay alert for additional updates as the situation evolves. Current Status: February 18, 2025 A federal court lifted the last remaining nationwide injunction stopping BOI reporting requirements. FinCEN which enforces BOI requirements under the CTA said it would extend filing deadline for initial, updated, and/or corrected BOI reports to March 21. However, reporting companies that were previously given a deadline later than March 21 may file their initial BOI report by that later deadline. Resources for consideration: March 21 BOI reporting deadline set; further delay possible BOI Injunction Lifted FinCEN BOI Center
February 7, 2025 FinCEN will consider changes to the BOI reporting requirements if a court grants the government's request for a stay of a nationwide injunction in a Texas case, according to a motion filed Wednesday, February 5th. If the stay is granted, FinCEN will extend BOI filing deadlines for 30 days, the government said in its filing in Samantha Smith and Robert Means v. U.S. Department of the Treasury, No. 6:24-CV-336 (E.D. Texas 1/7/25). BOI reporting is currently voluntary, pending further legal developments. Businesses and stakeholders should stay alert for additional updates as the situation evolves
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