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2020 Year-End Tax Planning

October 15, 2020

There is still time to potentially reduce your 2020 federal income taxes, but you’ll need to act soon!

Several tax minimization strategies are presented here – many of which need to be completed by December 31st, however not all of these strategies may be appropriate for you so please reach out to us in Williston (802.878.1963) or Rutland (802.775.7132) for personalized advice.

Time your income and deductions.

You may be able to defer some tax until next year by postponing the receipt of some income and paying some of next year’s deductible expenses this year. The benefit of deferring tax is that you gain another year to use or invest the money you otherwise would have paid in taxes this year.

To read more about this strategy please click here.

Make the most of your retirement and health savings accounts (HSAs)

  • Use tax-deferred retirement accounts to shelter income from current taxes.
  • NEW: The age limit on contributing to a traditional IRA is removed.
  • Business Owners: Start your own retirement plan!
  • Use a health savings account to shelter your income from taxes.

To read more about these retirement and HSA account strategies please click here.

Be smart about your donations.

  • NEW: Claim an above-the-line deduction for cash contributions up to $300.
  • NEW: The AGI limit on cash contributions is suspended for 2020.
  • Time your charitable contributions.
  • Consider bunching your charitable contributions if it allows you to itemize deductions.
  • Consider donating from your traditional IRA if you are over age 70 ½.

To read more about these charitable giving strategies please click here.

Keep taxes to a minimum on the investments in your taxable accounts.                                                                                                  

  • Harvest investment losses to help lower your tax bill.
  • Give appreciated securities to family members who are eligible at a lower tax rate.
  • New: The kiddie tax is once again based on the parent’s tax rate.

To read more about these strategies please click here.

Minimize taxes on your estate and inherited retirement accounts.

  • Use your annual gift tax exclusion.
  • Take advantage of the temporarily high lifetime exclusion.
  • New: Inherited a retirement account his year? Check your distribution period.

To read more about these strategies please click here.  

Additional tax planning considerations

  • Is this a good year to convert to a Roth IRA?
  • Will you have to pay the AMT?

To read more about these strategies please click here.

Tax planning in 2020 is complex and made even more so with the pandemic. Avoid any surprises next April 15th and be proactive in your tax strategizing. Davis & Hodgdon Associates CPAs has been assisting individuals and businesses throughout Vermont and New England for more than 30 years so please reach out to us in Williston (802.878.1963) or Rutland (802.775.7132) to schedule a strategy session today! You can also email us at info@dh-cpa.com

This article is published in the November 2020 edition of Eye on Money. If you would like to be added to Copper Leaf Financial’s mail list for this publication please email jennifer@dh-cpa.com