Tax planning you may wish to do by 12-31-20.
Hello again clients & friends!
This is 2020's main tax planning blog...
Most taxpayers file on a "cash basis" & any tax planning must be done prior to year-end, typically before December 31st. Making changes next January won't affect most 2020 tax issues.
please note: some of the following tax planning ideas assume (require) that you can itemize deductions! Many taxpayers (me included!) cannot itemize this year due to the new 2018 tax law... and if so, those planning ideas will have NO effect - please see my (IF) footnote throughout this blog. (ie. the planning idea works only IF you can itemize deductions)
(a few also may have no effect, if you are subject to the alternative minimum tax, AMT)
* Review the – “2020 Tax Pocket Guide” provided to you
(in last years blue tax file or provided at our initial meeting)
* Review all "blogs" regarding tax issues - archived at www.garlandtaylor.com
Here's 2 basic tax planning questions
"will your income in 2021 be the same or higher?"
"do you believe tax rates will increase in 2021?"
* Most taxpayers want to reduce taxes in the current year. If that is your goal, that can be accomplished by deferring taxable income - examples: waiting until 2021 to bill clients & sell stocks with gains or by accelerating expenses - example: making donations (IF), paying taxes (IF), or buying supplies/equip now
* However, if you believe tax rates or your income will be higher in 2021 - you may choose to do the reverse - and accelerate taxable income into 2020 & defer deductible expenses until 2021.
The White House 2018 tax law includes changes that could remove your ability to itemize deductions (if less than $24,800 if married filing jointly… you will just take a “standard deduction”).
Even if you can itemize, some deductions may now be limited – mortgage interest, state taxes, miscellaneous, etc. Required distributions, AMT tax & Estate tax laws are changed too. Tax rates are different & may be reduced for flow-through entities (some s corporations & LLC's) and corporations. Some regulations are still not final as of this date, but be sure to consider such possibilities when you tax plan...
Here’s a link to a summary of changes in the “new law”. see also prior blog articles
https://www.irs.gov/tax-reform
Here's a list of things the IRS suggests - "to get a jump on next years’ taxes"
* adjust withholding; make estimated or additional tax payments
* gather documents and organize tax records
https://www.irs.gov/individuals/steps-to-take-now-to-get-a-jump-on-next-...
* Here's a link to online tax planning topics & tools from the AICPA, of which I am a member. American Institute of Certified Public Accountants (aicpa) is the national organization.
just click on "life stages", topics, tax reform, or calculators
Topics include - managing your 2020 taxes. Am i having enough withheld?
Calculators include - tax calculator & self-employment tax calculator
https://www.360financialliteracy.org
Here are other links of interest…
* IRS Tips https://www.irs.gov/uac/Tax-Tip-Archive
* IRS Affordable Care Act provisions
https://www.irs.gov/Affordable-Care-Act/Affordable-Care-Act-Tax-Provisions
* Recent IRS news-> https://www.irs.gov/newsroom
* New Tax Law changes -> https://www.irs.gov/tax-reform
* IRS CARES Act -> https://www.irs.gov/coronavirus-tax-relief-and-economic-impact-payments
* IRS SECURE Act - “Setting Every Community Up for Retirement Enhancement Act of 2019” https://www.irs.gov/retirement-plans/plan-participant-employee/retiremen...
* Federal Energy Tax Credits -> https://www.energystar.gov
* Oregon Residential Energy Credits -> http://www.oregon.gov/ENERGY/
(remember that some energy tax credits need to be applied for NOW, to obtain a certificate in the mail, before you can file your 2020 taxes)
A g a i n - d o i t b e f o r e 1 2 - 3 1 - 2 0
(IF) footnote - these planning ideas may work for Oregon (since Oregon has a low standard deduction), but not for federal - only IF you have itemized deductions (over $24,800 MFJ or $12,400 MFS/single $18,650 HOH).
* determine if you need to adjust your payroll tax withholding (see “new law” link above for a calculator) or if you need to make estimated tax payments to avoid/stop underpayment penalties.
* Pay any Oregon state taxes that you know will be owed (using Form 40-V). (IF) + you haven’t reached the $10,000 limitation (new).
* Pay all real estate taxes (that are due 11-15-20), if only a partial payment was made. (IF) + you haven’t reached the $10k limit.
* Pay your mortgage payment before 12/31, if it is due early in January 2021. (IF)
* Talk with your pension advisor regarding retirement planning and contributions.
* Talk to your investment advisor regarding benefits in selling and/or keeping investments.
* Talk with your attorney regarding modifications in personal wills & business agreements.
(Please note that I am not licensed & do not provide investment, pension, or legal advice)
* Go through your closets & garage & consider contributing items to a qualified charity. Be sure to keep a detail of values (cost & used value) & take pictures. AND, you must get a receipt from the charity. (You can find Goodwill & St Vincents valuation guides online or document the value yourself). The usual (IF)
* Make charitable contributions by check or credit card & get written letters of acknowledgement. (IF)
NEW for 2020 - a possible $300 deduction for cash/check donations, even if you don’t itemize! Please see the rules at this link…
https://www.journalofaccountancy.com/issues/2020/sep/cares-act-charitabl...
* Defer income to 2021 & accelerate expenses into 2020, if that makes sense (see above & tax planner) But, if you believe your 2021 taxable income will be higher or tax rates will increase next year - just reverse that basic tax plan)
* Paying college tuition now might increase the tax credits for higher ed (see planner & articles. Note - there are income & other limitations)
* Bunch deductions - There are "floor" limits for medical (7.5% of adjusted gross income/AGI) so, either pay expenses now in 2020 or later in 2021 - to "bunch" & exceed limits. (IF)
* Take any required distributions – note, major changes to requirements were made in the IRS SECURE Act for 2020. See link above & below for details. Please note that my firms’ standard income tax services do not include calculating these required minimums for you.
https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-req...
* Use annual gift tax exclusion. No gift tax on gifts up to $15,000 per recipient
* Use your credit card to pay tax deductible expenses, but only if you need to
* if you have a rental property, determine if the activity is a "trade or business" under the new IRS cs199 (possible 20% deduction). There is a new safe harbor rule.
https://www.irs.gov/pub/irs-drop/n-19-07.pdf
* BIZ - Buy equipment, IF you need it (must be received & placed into service by 12/31)
(careful - see the luxury auto & SUV rules... Which may limit the amount deductible)
* BIZ - C corporations - pay bonus? or pay dividends? (fyi, some complex tax issues)
* BIZ - S & C corporations - make sure you have paid reasonable wages for your services during the year & have written support for that.
* BIZ - If you sell inventoriable items, you must physically count at year-end (at your cost)
* BIZ - S corporations. Make sure you have sufficient stock basis to claim any losses.
* BIZ - If officers have incurred/paid expenses personally - reimburse officers from the corporation under an accountable plan (mileage rates are 57.5 cents per mile, for 2020)
* BIZ - If there are officer loans on the books, get rid of them if possible (to reduce audit risk).
OK - Here's also a few things to do AFTER the year ends...
* BIZ - File 2020 Forms 1096/1099's by 1/31/21 (order them NOW at 1-800-829-3676)
(for rent, dividends, interest, services, etc that you paid in 2020. Order free forms by phone or online NOW at https://www.irs.gov/Forms-&-Pubs It will take a few weeks to get them!
Note: there is a NEW form for the 2020 payments to contractors, Form 1099-NEC
https://www.irs.gov/businesses/small-businesses-self-employed/reporting-...
* BIZ - File Personal Property Tax Reports with County assessors office by 3/15/21 (every Oregon business must file - check with your assessors office for forms) If you filed last year, you should receive a 2021 form in the mail. Or call your Assessors office. (Here's a link to information & the online form, when it becomes available) https://multco.us/assessment-taxation/business-personal-property-informa... just click on "confidential personal property return"
Foreign bank & financial accounts - you may be required to file with the FBAR by APRIL 15, 2021. This is a new change (years prior to 2018 were due June 30th).
https://www.irs.gov/businesses/small-businesses-self-employed/report-of-...
Here's a summary of what I am doing for year-end tax planning before December 31st
P E R S O N A L
* Itemized deductions – I’m not doing too much… since my mortgage interest is very small & state taxes are limited to $10,000 – I’m not able to itemize this year for federal tax purposes at all. ie. My total deductions don't exceed $24,800. But I AM able to itemize for Oregon, since that standard deduction (MFJ) is much smaller, only $4,630 MFJ ($3725 HOH, $2315 single). Not a huge tax offset, since Oregon tax rates are typically only 9%, but something at least! (IF) Ugh…
* Doing a 2020 income tax projection – to see if my payroll tax withholding is adequate. I’ll make additional estimated tax payments if it is not (or pay penalties!)
* Setting up a bright red folder marked "TAXES" and will place all 2020 tax documents there as they come in. Form W-2's, 1099's & Form 1098, pension data
B U S I N E S S
* Locate and copy purchase invoices & support for any tax credit items (1099-T, for tuition, etc)
* Order new Quickbooks software & download the software by 12/31. The Scanner I bought a few years ago & paperless workflow is going well! The QB software cost is small, so I'll expense it this year (using the IRS "deminimis" election), reducing my taxable income.
Be sure to categorize any/all 2020 equipment or software purchases under $2,500ea as EXPENSES (not fixed assets) in your accounting/bookkeeping software, to achieve that "deminimis" expensing tax election. Do not classify any items under $2500 as fixed assets on the Balance Sheet, or you can't make this election. Make a written accounting principle declaration to that effect, in your files on or before January 1st each year.
https://www.irs.gov/businesses/small-businesses-self-employed/tangible-p...
* Reimbursing myself (from my s corp) for all 2020 biz mileage & business expenses purchased on a personal card. note: sole proprietors & single member LLC's don't need to reimburse, just keep good detailed records & provide those to your CPA
* Purchasing business supplies, paper, and postage. Reviewing equipment & software needs
* Paying my corporate payroll taxes due 1-15-21, early & by Dec 31st (I am a cash basis biz).
* Paying my office rent that is due January 1st (I'd pay business insurance too, if due Jan/Feb)
* Entering all my accounting data into Quickbooks and reconciling my bank balance now
12/31 statement can be gotten online so I don't have to wait for bank. I know my data in QB is accurate.
* Order tax forms NOW (1099's, 1096, W-2, etc) from the IRS. This will take several weeks, so do it now.
* Complete my personal property tax report (County Assessor should mail those out, later in December. If you filed last year)
* round up my Goodwill receipts and calculate fair market values & list purchase prices so that i can deduct those as itemized deductions for Oregon. Again - the standard deduction for Oregon is much lower than federal, so you may still be able to take itemized deductions for Oregon!
And if you don’t itemize, remember that potential $300 deduction for cash/check donations (again, please see above for specific rules).
Tax Records - how long to keep?
https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Recordke...
Keep forever - all tax returns, real estate basis & improvement records. stock records too
Keep for 7+ years - all evidence to support taxable income & deductions
(W-2's, 1099's, receipts, cancelled checks, logs, retirement plans, donations, etc.)
If your 2020 taxable income, deductions, withholding, or estimates paid have changed significantly, it is recommended you engage my firms services to perform a formal 2020 income tax projection. (to anticipate taxes due, make changes in payroll withholding & determine if additional estimates are required to avoid or stop penalties)
For my corporate & LLC tax clients - If you haven't asked me to look at your 2020 Quickbooks or other accounting data yet - that's strongly recommended & now's the time, so I can still be able to peruse the file & comment before 2021. If you are cash basis - NO changes can be made after 12/31/20.
If you need help with filing form 1099's, sales or personal property tax reports, or reporting foreign accounts - please request that in writing (as these are not part of the income tax services provided. please see your engagement letter, if you're a client).
For my individual income tax clients... I look forward to working with you again!
Your Tax Organizer & appointment will be mailed to you in late December or early January (or I can email you a pdf copy instead, please just ask!). If you have a request for a specific time range or day of the week, let me know soon as I'll preschedule many clients based on last years meeting.
At this point, with the covid 19 virus rate rising – it is anticipated that 2020 tax interviews will most likely be done by phone, on Zoom or Facetime. Better yet... most tax data can simply be mailed, faxed, emailed, or dropped off at my front desk reception. Just to keep everyone 100% safe! That may change, depending on virus conditions during tax season.
Please email if you have any questions.
Thanks again for your business!
Vote, stay safe & have a great Holiday season!
GARLAND
Garland Taylor CPA, Pres.
Garland R Taylor CPA, PC
205 SE Spokane St Ste 300
Portland, Oregon 97202
(503) 287-5584 tel 287-6370 fax
cpa@garlandtaylor.com
www.garlandtaylor.com
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