Non-itemizers (i.e. most people) can now deduct $300 of charitable contributions (of money only) on their 2020 tax return even if they don’t itemize.
The stimulus you already received was really a pre-payment of a 2020 tax credit. When we prepare your 2020 tax return, we calculate the total 2020 stimulus tax credit based on your 2020 tax information (income, dependents, etc) and then subtract what you have already received. If you are due more stimulus, you get it with your 2020 tax return (in the form of an increased refund). If you have received too much stimulus pre-payment, then you don’t have to pay any of the overage back to the government. Be sure to tell us the exact amount of stimulus that you have already received so that we can correctly calculate how much additional stimulus you may be owed
If you earn over $206K, then you can not directly contribute new money to a Roth IRA. You might be able to “backdoor” the contribution though. If you don’t have pre-tax money in a Traditional IRA, then: 1. Create a Traditional IRA and make “nondeductible” contributions (up to $7,000). 2. Convert the nondeductible Traditional IRA to a Roth IRA.
If so, it may be an opportune time to convert some or all of your Traditional IRA to a Roth IRA. Once converted to a Roth your investment will grow tax-fee. If you have a Traditional IRA with a relatively large balance, a full conversion could push you into a higher tax bracket. If that’s the case, spread your conversion across 2020 and 2021 to save on the amount of taxes you’ll have to pay.
Most employees incur expenses to do their jobs. You might drive for your job or use your cell phone or home internet or maintain a home office. You, as an employee, have no way to deduct these un-reimbursed expenses on your individual tax return (those deductions go wasted). Instead, consider asking your employer to replace part of your wage with an expense reimbursement. Example: If you earn $50,000 and incur $5,000 of un-reimbursed expenses (driving, cell phone, internet, supplies, home office), then you pay FICA tax and income tax on $50,000. If you ask your employer to instead pay you $45,000 as a wage and $5,000 of reimbursement, then you now pay FICA tax and income tax on $45,000 even though you are still being paid $50,000…saving you $1,200 of tax/year.
If you are over age 72 then you are forced to withdrawal money from your IRA each year and include that amount in your taxable income. Most retirees don’t itemize since their itemized deductions (state and local taxes, mortgage interest, and donations) don’t exceed the $27,400 standard deduction – thus their donations don’t save them any tax. The solution: If you donate to charity directly from your IRA, then you don’t have to include that donated amount as income on your tax return…so in a round-about way, you get to deduct that donation (i.e., your taxable income doesn’t include the amount you donated to charity directly from your IRA).
If you were unable to work in your normally-profitable self-employed business due to practically almost any COVID-related reason, you can save up to 5K of tax. If you couldn’t work in your self-employed business because you had to take care of your children or another dependent, then you can save up to 10K of additional tax (on top of the 5K). Call us for details – there is math involved.