New York City, November 30, 2020 (GLOBE NEWSWIRE) – 14 important tips for year-end tax planning – from Syed Nishat, Partner at Wall Street Alliance group
After a turbulent 2020, it seems like the year is already over and there is nothing left to do for your finances. However, there are some tax planning strategies that you can still put into action to prepare for solid tax savings in 2020.
- Qualifying for a QBI Deduction: A new tax break was introduced for owners of many transit companies, including architects and engineers, with the Tax Cuts and Jobs Act (TCJA) of 2017. The deduction of qualified business income is generally 20% of qualified business income, subject to 50% of W-2 salary. To receive the maximum deduction, the W-2 must be adjusted by December 31st.
- Introducing Profit-Sharing and Benefit Plans: Due to the COVID-19 program to protect paychecks, business owners received money from the government, increasing total taxable income. While the deadline for setting up a Safe Harbor 401 (k) plan is up, there is still time to set up a 401 (k) with-profits or defined benefit plan for 2020. As contributions are not due until after the business tax filing deadline That won’t be with an extension until September 15th, this is a viable option. A self-employed person aged 50 and over can deposit up to $ 193,000 into a plan, and the money is fully tax deductible.
- Analysis of cost segregation: In order to make optimal use of the tax deductions for real estate, cost segregation is a tax planning tool that accelerates the depreciation rate of real estate components and thereby lowers the amount of taxable income. A cost separation analysis enables an optimization of the depreciation, an increase of the cash flow and a reduction of the tax burden. Changes in the law allow both new and used properties to be qualified and certain deductions made in the first year of ownership.
- Reduction of Net Operating Losses: The CARES 2020 Act contains legislation that affects net operating losses and their application to corporate taxation. Instead of the pure unlimited carryforward for tax years after 2017, there is now the option of a maximum of five years of carrying back net operating losses to previous years. The period of losses incurred is between 12/31/2017 and before 1/1/2021, making 2020 the only year to benefit from this carry-back option by allowing business owners to potentially request a refund from previous years to deal with cash flow challenges to help this year.
- Converting to a Roth IRA: If you have an IRA account, converting to a Roth IRA before December 31st can save you money on income taxes. If your income is lower this year but you expect an increase in the future, a Roth conversion can benefit from this year’s lower income, then the money will grow tax-free in the Roth IRA and future qualified withdrawals from the account will also be tax-free.
- Transfer to an Irrevocable Trust: Reducing the amount of your inheritance tax, the financial levy on an estate based on its current value at the time of the owner’s death, can begin with the transfer of assets to an irrevocable trust. The trust’s assets are not considered part of the estate for tax purposes and can grow tax-free. Under current law, wealthy couples can transfer nearly $ 22 million to an irrevocable trust.
- Funding an employer-sponsored 401 (k) plan: If you are already contributing to an employer-sponsored 401 (k) plan, keep in mind that you can deposit up to $ 19,500 plus an additional $ 6,500 to catch up when You are over 50 years old. The deadline for considering postponements on your W-2 is December 31st.
- Applying for Funds for Disaster Damage: With all 50 states, the District of Columbia, and five U.S. territories designated as disaster areas due to the COVID-19 pandemic, every U.S. company may be eligible for refunds for certain types of disaster damage. Under current tax rules that allow companies to claim certain disaster losses on a previous year’s tax return, in 2020 a company could claim a COVID-19-related disaster loss with a modified 2019 tax refund. This could result in a faster refund. To qualify, the loss must have been caused by COVID-19, but this loss can fall into many categories, including office or store closures and loss of inventory or supplies.
- Establishing a Nonprofit Foundation: For an option that will benefit the donor and the nonprofit organization of your choice, consider establishing a charitable foundation. A donor can deduct up to 60% of Adjusted Gross Income in cash, or 30% of Adjusted Gross Income if the trust contains valued assets such as stocks. However, the donor may carry over the deduction for additional years if it cannot be amortized in a particular year. The deadline for the proper payment of cash or other funds ends before the end of the tax year.
- A Look Inside Tax Loss Harvesting: If you’ve looked at the S&P 500, you’ve likely found that it’s near a record high since the start of the year. As a result, many actively managed funds will pay high taxable dividends and capital gains distributions before the end of December. Tax loss harvesting gives you the opportunity to minimize these profits and lower your tax liability by selling securities, especially if they are short-term securities.
- 529 Plan Contributions: Many states allow residents to deduct a certain amount for 529 plans made during the year. This lowers the state’s tax liability. For example, a couple who jointly submit contributions to a New York 529 plan can deduct up to $ 10,000 annually when calculating their New York taxable income. To use this deduction in 2020, contributions must be made by December 31st.
- Accelerated AMT Refunds: The CARES Act accelerated the timeline for the TCJA to repeal the Alternative Minimum Tax for Business (AMT), allowing businesses to claim all of their unused AMT credits in either 2018 or 2019. This gives businesses some options to apply for quick refunds, but businesses must apply for AMT credit at the expedited rate by December 31st under this current expedited rate legislation.
- Maximizing Flex Savings Account (FSA) Funds: To ensure that you are maximizing the benefits of your annual FSA contribution, it is important to use your FSA funds on related medical expenses and file a refund for that amount to ensure the amount does not expire. Remember, if you haven’t used all of your balance by December 31st, you can carry over up to $ 500 of unused funds to the following year.
- Giving Funds to Children and Grandchildren: Married couples can give up to $ 30,000 (each $ 15,000 each) to their heirs without incurring gift tax in 2020. Gifts like these are a smart way to reduce the taxable amount of your estate while leaving fortune to the next generation or even your grandchildren. To qualify for the 2020 tax year, the donation must be made by December 31st.
“To know which of the strategies best fits your personal situation and how you can best implement them to get the most benefit in your tax planning, it is best to work with an experienced financial advisor to assess your individual circumstances and Discuss future goals because they know the complex rules and regulations of financial planning and can advise you accordingly. ”said Syed Nishat, partner of the Wall Street Alliance Group. Working with a trusted financial advisor will prepare you for success. In this way, you can optimally use the advantages of 2020 in order to be well positioned for 2021.
About the Wall Street Alliance Group- The Wall Street Alliance Group is a nationally recognized asset management company headquartered in Manhattan, New York. Fiduciary, serving high net worth clients, the company aims to help first generation immigrants achieve financial well-being. The Wall Street Alliance has a team of consultants with expertise in areas such as tax planning, estate planning, asset protection, portfolio management, 401 (k) plans, defined benefit plans, special needs planning, medical financial planning, and fiduciary services. Please visit www.wallstreetag.com.
“Securities offered by Securities America, Inc. member FINRA / SIPC. Advisory services offered by Securities America Advisors, Inc. The Wall Street Alliance Group and Securities America are separate entities. Securities America and its agents do not offer tax – or legal advice to It is important that you coordinate your specific situation with your tax or legal advisor. “
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Syed Nishat, partner in the Wall Street Alliance Group