It’s time to take a look at a few things for your personal tax return.
New charitable contribution option If you do not itemize deductions, you can claim up to $300 of cash or check contributions to a charity on the front page of your tax return. Non-cash donations such as clothing, furniture and other personal property, do not qualify for this deduction. These non-cash donations are still reported on Schedule A (Itemized Deductions).
Did you receive a stimulus payment in 2020? The 2020 tax return asks for any stimulus payment received. If you received too little or none at all this may be the way to receive your payment.
Did you take a distribution from your qualified retirement plan or IRA? If so, and it was for COVID-19 reasons, you will not incur the 10% early withdrawal penalty. Also, you have options on how much to report on your tax return. For example, if you withdrew $60,000 from your IRA, you can report the entire amount in 2020 or spread this out over three years. If you repay the loan within three years, amended returns can be filed to refund the tax paid on the distribution. Contact us for the COVID rules on this distribution.
Look at Roth IRA conversions this year. Did you have less income in 2020? Do you have a traditional IRA? Will your income increase in 2021 and possibly further? What do you think tax rates will be going forward? These are all considerations when looking at Roth IRA conversions. This year may be a good opportunity to pay a one-time lower tax on your conversion. Generally, Roth IRA withdrawals are non-taxable. There are many considerations so call us to discuss your individual situation.
Is your income too high to qualify for a Roth IRA? You can still contribute to a traditional IRA and then convert to a Roth IRA. If you have multiple existing traditional IRA’s the rules are a bit different. Call us and we can discuss the details.
New rules for 529 accounts You can use 529 accounts to pay for apprenticeship program expenses such as fees, books, supplies and equipment required for the program. Also, up to $10,000 (in total, not yearly) can be paid on qualified student loans. This can be for the designated beneficiary or their sibling.
How you can lower capital gains tax With record stock market values check with your financial adviser on estimated capital gains, interest, and dividends on your accounts. Several companies have announced extra year end dividends in anticipation of higher tax rates next year. If you have stock that’s declined in value it may be a good time to sell to offset other gains you may have.
We hope you and your family have a safe and happy holiday season. If you have any questions regarding your personal tax return, or any other related subject, please contact us at David Mills, CPA, LLC.