Tax Tips for 2020

With the change of the calendar year, individual taxes tend to come into focus as the tax return deadline quickly approaches. While the thought of income taxes and income tax filing can be stressful to most, taking a simplified approach, while being methodical and proactive in filing, and planning for future taxes can reduce this burden. Here are some tax tips for 2020 to help manage potential challenges.

It’s Not Too Late for 2019 Adjustments

Now that 2020 is here, a high priority is to get your 2019 tax returns filed. Getting your prior year tax return filed is the first step to taking control of the current year’s taxes, as your tax return can be used as a starting point for future tax planning. The tax deadline for 1040 returns this year is Wednesday, April 15, 2020. Even though 2019 has passed, there are still some actions that can be taken to reduce your 2019 tax liability or better improve your financial health.

• If you have a Health Savings Account (HSA) with a qualifying medical plan but did not maximize your HSA contributions during 2019, you have until the tax filing deadline to make contributions to this account for 2019.
• You can also make traditional and Roth IRA contributions up until the tax filing deadline, subject to the 2019 IRA limits and rules.
• If you turned 70 ½ during 2019 and did not take your requirement minimum distribution (RMD) from your retirement accounts, you have until April 15 to satisfy that distribution without penalty. This only applies for the first year you are subject to RMDs; subsequent years’ distributions need to be made by December 31.

Understand the Implications of the New SECURE Act

Speaking of required minimum distributions, at the end of 2019 a new piece of tax legislation (the SECURE Act) passed that affects retirement and wealth transfer planning. One of the major changes raised the age for starting RMDs to 72 for 2020 and beyond, for anyone not already subject to RMDs. This is a major change, as it allows for an increased window for additional retirement planning techniques such as Roth conversions and capital gains harvesting before RMDs start.

There were several other key changes from the SECURE Act that are described in our article How the SECURE Act May Affect You (Hint…It Probably Does).

Plan for 2020

With a new tax year comes new annual limits on tax-advantaged accounts. For 2020, the limit for 401(k) deferrals has increased to $19,500 (additional $6,500 catch-up if over 50) and Health Savings Account contribution limits increased to $3,550 for individuals and $7,100 for family coverage (If over 55 an additional $1,000 catch-up contribution can be made). It might make sense to review your current elections and possibly make updates for 2020.

If you are expecting any major changes to your tax situation for 2020, or are not happy with the end result of your 2019 tax return, ask your tax professional to do some tax planning for you. Tax planning can help determine if you need to update your withholding or estimated payments. It can also help identify any potential opportunities to limit your tax liability or improve your financial health. As always, the earlier in the year tax issues are addressed, the higher the likelihood strategies can be implemented to tackle any potential issues.