2020 Year-End Tax Guide

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For 2020, the CARES Act relaxed some tax deduction limits on charitable giving. “ ”

CHARITABLE DONATIONS Year-end is a great time to make

401K AND SEP CONTRIBUTIONS Contributions to a traditional employer-

donations to qualified charities. For 2020, the CARES Act relaxed some tax deduction limits on charitable giving. Cash donations to

sponsored defined contribution plan are typically pretax, therefore reducing taxable income. If you are an employee and your company offers a 401K plan, you should try to maximize your contribution to boost your retirement savings and reduce current year taxes. The maximum contribution to a 401K plan increased to $19,500 in 2020 (from $19,000 in 2019). Employees age 50 or older can also make an additional “catch-up” contribution of up to $6,500 (from $6,000 in 2019). If you are self-employed, consider setting up a self-employed retirement plan (SEP) or some other type of retirement plan in order to maximize the allowable contribution each year. For SEP, you have until the tax filing deadline, including extension, to set up a plan and make contributions for the year. While you also have until the tax filing deadline to make profit sharing contributions, a new plan needs to be established no later than December 31 of the tax year. Under the CARES Act, if an individual, spouse or dependent is diagnosed with COVID-19, or is otherwise economically harmed by a business closure or quarantine, the individual can draw up to $100,000 from their IRA, pension plan, or 401(k) plan in 2020 without incurring the 10% early distribution penalty. The income attributable to this distribution will be taxed over a period of three years. The withdrawals may also be re-contributed back into a qualified retirement plan at any time during the three-year period to eliminate otherwise reportable taxable income.

public charities other than a supporting organization or a Donor-Advised Fund are fully deductible up to 100% of adjusted gross income (AGI) (increased from 60% of AGI in 2019), and gifts of appreciated property or gifts for use by public charities are deductible up to 30% of AGI (unchanged from 2019). The above-the-line deduction for cash contributions to charities that each taxpayer can claim is now up to $300, so taxpayers who do not itemize can take advantage of this new deduction. This $300 deduction is not available to taxpayers who itemize deductions. For donations made during the year, be sure to get acknowledgment letters from the qualified charities for both cash and property (including stock donations) donations over $250. If you are not certain if a particular charity is qualified, you can consult the IRS website at https://apps.irs.gov/app/eos/ and search for the organization in question. Consider bunching donations into 2020 to take advantage of the tax deduction limits reduced by the CARES Act. The regular contribution deduction limits are expected to return after 2020. X Donate appreciated stock to charity to avoid paying capital gains tax and get a fair market value deduction for stocks held for more than one year. X Sell depreciated stock and donate the cash proceeds to charity. You will receive a charitable deduction as well as a capital loss benefit on the sale of stock. Capital losses offset capital gains, and any resulting net loss in future years offsets a maximum of $3,000 in ordinary income for a married filing joint taxpayer ($1,500 for all other taxpayers). Planning Opportunities: X