2020 Tax Planning Considerations for Individuals

How will you take advantage of all of your options during tax time this year? These are some things you may want to consider as you schedule your 2020 individual tax planning meeting:

• The IRS has launched an improved tool to help taxpayers check their withholding by doing a “Paycheck Checkup.” You will need your most recent paystubs and your most recent income tax return. Visit the IRS website to learn more.
• Maximize contributions to Health Savings Accounts. 2020 contribution limits are $3,550 for individuals and $7,100 for families. 2021 limits will be $3,600 for individuals and $7,200 for families. Individuals 55 and older can make an additional $1,000 catch up contribution. You can maximize your HSA contributions even if you did not become eligible until the end of 2020. You can designate contributions for 2020 up to the filing deadline of 4/15/21 however you do need to set up your HSA account before the end of the year.
  • Contact Christianson Insurance Agency for additional guidance.
• Consider contributions to traditional and Roth IRA accounts. Traditional IRA contributions are tax deductible (subject to income limits) in the year of contribution and distributions are taxable income. Roth IRA contributions are not deductible, payouts, however (including earnings) are tax-free and thus immune from the threat of higher tax rates as long as they are made after a 5- year period and after attaining age 59 1/2, after death or disability, or for a first time home purchase.
• Individuals ages 70.5 and older with IRAs should make charitable contributions directly from their IRAs (Qualified Charitable Distributions) to maximize tax benefits. Qualified charitable distributions are not included in taxable income which can also decrease the taxable portion of social security benefits and increase MN Property tax refunds.
  • Contact Christianson Financial Advisors for additional guidance.
• If you have a college student who started fall semester 2020 and did not yet incur $4,000 of tuition expenses, pay spring tuition before year end to take advantage of the full American Opportunity Credit this year ($2,500).
• If you make substantial charitable contributions, consider “bunching” and making the contributions every other year to maximize your federal tax benefit. Self-directed funds where a lump sum is contributed and then dispersed at your direction are also an alternative.
• If your 2020 income is down significantly placing you in a lower than normal tax bracket, consider converting a portion of your retirement funds to a Roth IRA or otherwise accelerate income to take full advantage the lower bracket.

Be sure to meet with your tax preparer early so that you can ensure you are getting the max out of your taxes this year. As always, we encourage you to speak with one of our experts to discuss tax planning for your specific situation. We’re happy to help.

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