Top 3 End of the Year Tax Planning Tips

Between the upcoming presidential election and the COVID-19 pandemic and its attendant stimulus packages, this year has seen more than its share of uncertainty around tax — which makes helping clients with year-end planning all the more crucial.

“Year-end tax planning is more important than ever this year,” said Renato Zanichelli, national managing partner of tax services at Grant Thornton, in a statement. “Businesses both large and small have been dealt a tough hand. Having the right tax strategy will help businesses navigate this time of historic disruption and put them on the right track as a new year begins.”

With that in mind, we have put together a list of the top 3 tax considerations for year-end planning for both individuals and businesses.

Leverage low interest rates and generous exemptions before they’re gone
The historically low interest rates and lifetime gift and estate tax exemptions present a powerful estate-planning opportunity. Many estate and gift tax strategies hinge on the ability of assets to appreciate faster than the interest rates prescribed by the IRS. In addition, the economic fallout of COVID-19 is depressing many asset values. There’s a small window of opportunity to employ estate-planning techniques while interest rates are still low and the lifetime gift exemption is at an all-time high.
Use above-the-line charitable deduction
Everyone is entitled to a charitable deduction this year. The Tax Cuts and Jobs Act doubled the standard deduction while repealing or limiting many itemized deductions, leaving millions fewer taxpayers claiming actual itemized deductions. Typically, there is no tax benefit for giving to charity unless you itemize deductions. However, the CARES Act created an above-the-line deduction of up to $300 for cash contributions from taxpayers who don’t itemize. To take advantage of this provision, taxpayers should make sure to donate before the end of the year.
Understand the impact of that stimulus check
The CARES Act directed the IRS to issue stimulus checks of up to $1,200 per taxpayer and $500 per qualified child dependent earlier this year. The payments were paid based on 2018 or 2019 return information, but are actually structured as advances of 2020 tax credits. The credits phase out for higher-income taxpayers, so taxpayers want to understand the implications if the check they received based on 2018 or 2019 won’t match the amount of credit they will calculate on the 2020 return. If the 2020 credit calculation is less than they received, there is no clawback. If they received less than the credit calculated for 2020, they can claim it as an additional refund.
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One Response

  • I’m glad you listed the $1,200 tax cut. I need to get a lawyer to look at tax cuts for the estate. I’ll have to consider getting an estate planner to help with our will.

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