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5 Money-Saving Tips for Filing Your 2020 Taxes

Filing taxes is a complicated process, and every year, new laws and regulations make it even more difficult. In between the endless forms and going through a year’s worth of receipts, it is easy to see why tax season is one that most people avoid thinking about. Besides wanting to ensure that no more money than necessary is spent on taxes, there are legal considerations as well. The IRS is a stringent organization, and there are severe repercussions for individuals and businesses that don’t comply with their rules.

For companies and individuals looking to avoid the hassle as much as possible, these tips can help with filing the 2020 taxes this year.

Tip 1: Know What Counts as Taxable Income

Most types of income are taxable, with very few exceptions. Gifts and inheritances under a certain amount are often not considered taxable income, but interest on investments, wages, salaries, dividends, bonuses, tips, and pensions are all considered taxable. Even alimony payments, child support, and unemployment benefits all count as taxable income and need to be factored into your calculations appropriately. One of the newest changes to tax forms, specifically Form 1040, is about cryptocurrencies. The IRS has recently changed the form to include specific language asking about investments and trading within the cryptocurrency world.

The qualified business income deduction lets some corporations, specifically S-corporations, have up to 20% of their income deducted. Additionally, qualified foreign businesses, even those run by American citizens, may not need to include their payment in their taxable income. It can be a complicated process to determine a company’s eligibility for these options, so it’s best to consult with a tax expert before filing your taxes.

Tip 2: Use Losses to Offset Gains

Known among savvy investors as loss-harvesting, the idea is to sell off stocks and mutual funds that have performed poorly throughout the year. This is typically done at the end of a tax year because the loss you incur by selling off the stocks reduces the overall gains you may have earned. If you want to step up your game, you can use excess losses to offset other income types if your losses exceed your capital gains. Up to $3,000 of those losses can offset other taxable income and reduce the amount of taxes you owe the IRS.

Don’t worry if you have over $3,000 in losses after you offset your gains. Losses carry over year after year, so you can use them to cancel your gains in 2021 and beyond that if you have substantial losses to continue carrying.

Tip 3: Identify Your Deductible Expenses

One of the most significant deductible expenses is related to healthcare. The IRS will give a tax break for those often-high hospital bills for qualifying individuals who underwent major surgery or needed critical medical intervention for an illness. If your medical bills exceeded 7.5% of your gross income, they could be deducted from your taxes owed.

Itemizing expenses can make filing taxes even more complicated. Still, the Tax Cuts and Jobs Act has recently mandated that only those whose itemized costs are more significant than the standard deduction have the option of itemizing at all. Previously, anyone could choose to list itemized expenses instead of requesting the standard deduction. The Act was meant to simplify filing taxes, but there is no reason not to check if itemizing expenses will save you more money.

The standard deduction is based on your filing status. It is an amount that can be deducted automatically from your taxable income when calculating the amount of taxes that you owe for that year. In 2020, the standard deduction for those who file as single was $12,550, $25,100 for married, and $18,800 for the head of household.

Another possible tax credit comes in the form of the Child and Dependent Care Tax Credit for parents who use daycare services for their children. If your business offers childcare for working parents, you may be eligible to claim tax credits for that childcare service provided.

If you decide to upgrade your house to be more energy-efficient, you can also claim 30% of the cost on your tax deductibles. Everything from solar panels to wind turbines can be claimed, as well as the cost of installation for necessary equipment. The IRS has recently changed its policy on residential energy credits, so consult Form 5695 for more information.

Self-employment or being a business owner is a tricky situation to navigate tax-wise, but plenty of items can count as tax deductions, so it is worth your while to do it right. For example, a home office can be deducted based on the square footage and how much of your house’s square footage it represents. Additionally, if you made significant purchases for your company like furniture, new technologies, construction equipment, or paid employees, these can all be listed as tax deductions. Other types of tax write-offs for businesses include:

  • Food and beverages consumed in the workplace
  • Office supplies
  • Travel expenses
  • Phone and internet fees
  • Interest and fees associated with business loans
  • Interest from mortgages
  • Advertising costs
  • Start-up expenses
  • Equipment depreciation
  • Real estate taxes
  • Legal and other professional service fees
  • Classes and additional educational costs
  • Standard mileage deduction of $0.545 per mile driven
  • Business insurance

Charity has plenty of ethical benefits, but it comes with financial benefits too. When you contribute to a non-profit charitable organization and save your receipts, that money counts toward a tax credit. Your annual giving statement will give more information about the size of your gift and how much of a tax credit it affords you. The IRS is willing to give companies a break when they contribute to needy organizations that often run almost exclusively on generous donations.

In 2020, everyone who is not filing as married can deduct $300 for charitable contributions, assuming they accept the standard deduction. For those filing as married, that limit increases to $600. Just make sure that you give before the end of the calendar year. Contributions made after December 31st cannot be deducted from your 2020 taxes.

Tip 4: Learn About Filing Status

Married people can file jointly as married on their taxes, but there are some benefits and drawbacks to filing as single or head of household. For example, in 2020, someone filing as single would fall into the 10% tax bracket if they made under $9,875, whereas someone filing as head of household’s range for the same bracket qualifies by making less than $14,100. That can help lower your tax bracket, assuming you are eligible for head of household status.

To qualify, an individual needs to be financially responsible for over 50% of household expenses, be considered unmarried for tax purposes, and have a financial dependent. Check the IRS website for more information about learning which filing status works best for you.

Tip 5: Contribute to Health and Retirement Funds

Retirement funds and health funds are a great way to save for the future and minimize the amount of money the IRS demands for tax purposes. Contributions to a 401(k) or an IRA or individual retirement account can be made throughout the year, and that money counts as a deduction on your tax forms. The 2020 limit for 401(k), 403(b), Thrift Savings Plan, and the majority of 457 plans is $19,500.

For SIMPLE retirement accounts, that limit is $13,500 and $6,000 for IRAs. As of 2020, there is no age limit for contributions to an IRA, although if you are over 50 years old, you can add $1,000 each year. That catch-up contribution for people over 50 with a 401(k)s is $6,500. That is plenty of money that works to improve your future and counts as tax-deductible in the present.

Health savings accounts (HSA)s and SEP-IRAs (Simplified Employee Pension account) also count as deductions. SEP-IRAs have a limit of 25% of overall earnings, with a maximum of $56,000 for 2020. For HSAs, you must be covered by a high-deductible plan. Be sure to look up how much you can contribute each year because it varies on the type of plan. HSA contributions can still be withdrawn tax-free for medical expenses in certain situations, and money that goes unused is invested.

Ensure that your contributions are early since you need to make them before April of the current year for both HSAs and IRAs, although self-employed people can file for a tax extension for extra time to get their receipts and contributions in order. This tax extension to October can be beneficial if there is a lot of expenses to add up or if you have dealt with a serious illness or severe injury that required medical intervention.

Contact Us Today

With all of the forms and schedules to keep track of, it’s no wonder that most people prefer to file their taxes online or contact a tax professional to help ensure their tax return is filed properly and accurately. If your company needs assistance filing your taxes, you need to reach out to the Enterprise Consultants Group’s tax advisors. We can answer your questions, discuss your rights, and provide actionable options. Please contact us online or at (800) 575-9284 today to schedule a free and confidential consultation to see how we can help you.

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