The article below is up to date based on the latest tax laws. It is accurate for your 2019 taxes (filed in 2020) and 2018 taxes.
October is Financial Planning Month, and what better way to plan than to take a look at your taxes! You thought you didn’t have to do that until January, right? Not true because now is the time to do everything you can to reduce your taxes. Here are a few tax planning steps that you can take now to help you with your 2020 taxes (the ones you file in 2021) and finances:
Make adjustments for COVID-19 impacts. COVID-19 has affected millions of Americans in so many ways. If you were impacted, first of all, know that TurboTax is here for you. Whether you were unemployed or furloughed and didn’t have federal taxes withheld or you were self-employed and could not work due to COVID, find out tax tips, advice, and up-to-date information on the TurboTax Unemployment Center and the Self-Employed Coronavirus Relief Center so there are no surprises at tax time.
Give away things you don’t need. If you missed cleaning out your closet or donating throughout the year, now is a great time to sort your clothes and give things you don’t need or want to a 501(c)(3) charity that supports victims of COVID-19 or victims of the recent natural disasters. The benefits of doing this include: you will help someone in need and may be able to get a tax deduction. TurboTax ItsDeductible can help you track and value your charitable donations year-round.
Contribute as much as you can to retirement plans. One of the best ways to benefit financially is to stock money away for your future in a retirement account and garner tax savings at the same time. If your employer matches your contributions, that’s even better. If you have a plan at work, the money comes straight out of your paycheck so you don’t even have to think about it. You can contribute up to $19,500 ($19,000 for 2019) and an additional $6,500 if you’re 50 or older to an employer-provided retirement account. You can also contribute $6,000 to an IRA (additional $1,000 if you’re 50 or older) for 2020, which is the same limit as 2019.
Get an education and a tax credit. If you are paying for post-high school education for yourself and/or your child, you may be eligible for the American Opportunity Tax Credit or the Lifetime Learning Credit. If you or your dependent are attending college next year, you can pay for the first quarter tuition before the end of this year and reap the benefits of the education credits on your 2020 taxes.
Accelerate tax deductions. Did you receive an unexpected bonus this year that moved you into a higher tax bracket? You may want to move some of your tax-deductible expenses from next year to this year to lower your taxable income and tax bracket if you itemize your tax deductions. You can pay the second half of your 2020 property taxes as long as they were assessed for 2020, pay your January mortgage payment in December, make donations this year instead of next, and make and pay for those doctor’s visits.
Also, since the standard deduction increased under tax reform, if you once itemized your tax deductions and were able to claim things like charitable contributions, you may now have to take the standard deduction. However, you can possibly boost your tax deductions using the tips above allowing you to still itemize.
Don’t worry about knowing these tax rules. TurboTax asks you simple questions about you and gives you the tax deductions and credits you’re eligible for based on your answers. If you have questions, you can connect live via one-way video to a TurboTax Live CPA or Enrolled Agent to get your tax questions answered. TurboTax Live CPAs and Enrolled Agents are available in English and Spanish and can also review, sign, and file your tax return.