As this bizarre year is quickly coming to a close, now is a great time to review your tax information to prepare for tax season. Here are four things to evaluate before the close of 2020.
Have You Maxed Out Your Pretax Retirement Contributions?
For 2020, you’re allowed to contribute up to $19,500 to your 401(k) or 403(b). If you’re aged 50 or older, you can add and additional $6,500 in catch-up contributions. This could help lower your tax bill with pretax contributions. Another way to boost your retirement savings is to pull funds from a year-end bonus. However, be sure to check with your human resources department or 401(k) advisor as rules and limits can vary. To learn more, visit the IRS website.
Have You Maxed Out Your Contributions To Health Savings Accounts (HSAs)?
This year, the IRS raised the limits on HSA contributions to $3,550 for individuals, and $7,100 for families. The catch-up contribution remains at $1,000 for those aged 55 or older. If your company offers an HSA, it’s a great way to lower your taxable income, while both stashing away money for doctors’ visits and giving yourself a discount on those expenses in the process. To learn more, visit the IRS website.
Take the Time to Review Charity Donations and Consider Maxing Them Out Too
For those who itemize on their tax returns, making charitable donations of personal items or cash will help those in need and could lower your 2020 tax bill. A charity will send you a tax acknowledgment following your donation. If you donated a physical gift, like a piece of furniture or a vehicle, then you should also receive paperwork citing the item’s value. For more specifics on determining the fair value of your gift and how to itemize it on your tax return, visit the IRS website.
Consider Prepaying Any Upcoming Tuition
Do you currently have kids in college, or one who’s preparing to go next year? If so, you can consider prepaying tuition for the first quarter of 2021, while possibly giving yourself a tax break on your 2020 return. Check out the IRS website to see if you’re eligible, and for how much, through the American Opportunity Tax Credit program. To learn more, visit the IRS website.
*Please consult your tax advisor for tax advice about your situation.