Year End Tax Tips for Individuals

Last updated 25 November 2020

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  1. Defer Your Income

Since you only pay taxes on the money paid in the year - if you can get paid tomorrow (1 Jan) instead of 31 Dec - go for it. Salaries are usually not something you can delay but can you defer your Bonus? If you are a freelancer, self-employed or a consultant you can control the flow. Don't bill until bery late in December. Hopefully the bill won't be paid before 31 December.

Defer or delay wisely since it might result in increased taxes in the subsequent year. So talk with your tax preparer - planner

  1. Clean the Closet Out or give some last minute Charitable Gifts

Rummage through your closet and go to your nearest Salvation Army, Goodwill etc. and donate items. Old Coffee tables, dressers, art, handbags, toys, sports equipment and more.

Make sure you get a receipt so you are not like Santa giving it away without a receipt.

If you have a charity that will accept donations via stock or bond portfolio - consider transferring stock that has appreciated rather than giving cash. There are ways to get a double whammy. If you have held it the required amount of time (more than a year) you can take the market value on the day of donation and you eliminate capital gains based on the appreciation. It keeps cash in your hands. These types of transactions usually take three or more days so start on the 15th or 20th of December at the latest.

Under the new tax laws we have suggested some people alternate the years in the cash or charitable contribution. Skipping a year, especially if your charitable donations takes you over the standard deduction, will make you fat in donations one year (going over the Standard Deduction so you itemize) and then being lean in the alternate year (where you are under the Standard but still get the higher Standard Deduction). We call it "Charitable Stacking."

We have already seen clients save on tax burdens to the tune of 3-4K. It is worth talking with your tax professional.

  1. MAX OUT your Retirement Accounts - Get Some Free Money!!!

Max our your 401K (19,500 for 2020, 26K if you are over 50). These are great tax-deferred investements that will grow in a compound manner. Always put away whatever percentage your employer will match (at a minimum) but try and max that puppy out. That is an automatic 100% return on the match. You will be glad later on.

If you are Self-Employed you also have options. Use these to your benefit.

  1. Sell your Stocks that are Dogs!!!!

Most investors have some stocks that have gone down in value since you purchased them. Sell enough of them before year-end (at least 3K). The 3K target is key since if your total capital losses exceed all your capital gains for the year you may deduct up to $3,000 of these losses from your ordinary income--that is, the income you make from your business. If your overall capital loss is more than $3,000, the excess carries over to the following year.Donate to Charity

  1. Remember your RMDs (Required Minimum Distributions) from your IRA Account

Under the new tax code you don't have to take RMDs until the year in which 72 by 1 April. Check and make sure you are following the rules so you avoid the penalties for not taking out the money.

Remember for 2020 the RMDs are SUSPENDED. You don't have to take them so talk with your broker and if you DON'T need the money don't take the money.

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