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Environmental Tax Breaks You Should Know…

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As more individuals and businesses embrace eco-friendly practices, governments worldwide are offering tax incentives to reward environmentally conscious decisions. Whether you’re a homeowner installing solar panels or a business transitioning to electric vehicles, there are numerous environmental tax breaks available. However, navigating the tax forms associated with these incentives can be daunting. This guide will help you understand the key forms, tax credits, and deductions that can lead to substantial savings for your green initiatives.

1. Understanding Environmental Tax Breaks

Environmental tax breaks are financial incentives offered by federal, state, or local governments to encourage environmentally friendly behaviors. These may include:

  • Installing renewable energy sources like solar, wind, or geothermal systems.
  • Purchasing electric or hybrid vehicles.
  • Implementing energy-efficient upgrades in homes or businesses.

These tax breaks often come in two forms: tax credits and tax deductions. Tax credits reduce the amount of taxes owed, dollar for dollar, while tax deductions lower your taxable income.

Federal vs. State Incentives

Before diving into the specific tax forms, it’s crucial to distinguish between federal and state environmental incentives. The federal government offers nationwide credits, such as the Federal Solar Tax Credit, but many states and municipalities also have their own incentives. Make sure to explore both levels of potential savings.

2. Key Tax Forms for Individuals

Form 5695: Residential Energy Credits

If you’ve made energy-efficient improvements to your home, such as installing solar panels, wind turbines, or geothermal heat pumps, you’ll likely need IRS Form 5695. This form allows you to claim credits for renewable energy installations under the Residential Energy Efficient Property Credit.

What to Include:

  • Cost of equipment and installation.
  • Details of the improvements made (solar, wind, geothermal).
  • Any state or local rebates received, as these must be deducted from the amount you’re claiming.

Form 8911: Alternative Fuel Vehicle Refueling Property Credit

If you’ve installed an electric vehicle (EV) charging station at your home, you may qualify for the Alternative Fuel Vehicle Refueling Property Credit. IRS Form 8911 helps you claim up to 30% of the cost of your charging station.

What to Include:

  • The total cost of purchasing and installing the charging station.
  • Specifics on the location and use (residential or commercial).

Schedule A (Form 1040): Itemized Deductions

If you’ve made energy-efficient improvements that qualify for a state tax deduction (such as insulation, energy-efficient windows, or heating systems), you’ll need to itemize your deductions using Schedule A.

What to Include:

  • Proof of the cost of materials and installation.
  • State-specific guidelines for energy efficiency improvements.

3. Key Tax Forms for Businesses

Form 3468: Investment Credit

Businesses that install renewable energy systems, like solar or wind power, can use Form 3468 to claim the energy investment tax credit (ITC). This form covers both large-scale renewable energy projects and smaller commercial installations.

What to Include:

  • Details of the project and system type (solar, wind, etc.).
  • Total project costs, including installation.
  • Documentation of any state or local incentives received.

Form 8834: Qualified Plug-In Electric and Electric Vehicle Credit

For businesses that purchase electric or plug-in hybrid vehicles, Form 8834 allows you to claim credits for the purchase of environmentally friendly vehicles. This credit applies to certain qualified plug-in electric drive motor vehicles.

What to Include:

  • Purchase price of each qualified vehicle.
  • Vehicle identification numbers (VINs) of the vehicles being claimed.
  • Manufacturer certification that the vehicle qualifies for the credit.

4. State-Specific Forms

In addition to federal tax breaks, many states offer their own environmental tax credits and deductions. Some states have forms specifically designed to capture the details of local incentives. For example:

  • California Form 3800: Used to claim the New Solar Homes Partnership (NSHP) credit.
  • New York Form IT-255: Used for claiming solar energy system equipment credits.

What to Include:

  • Make sure to review your state’s department of taxation or energy office websites for specific forms and eligibility.
  • Include receipts, certifications, and details of local rebates.

5. Tips for Filing Environmental Tax Credits

Filing for environmental tax breaks can be a complex process, but these tips can simplify your experience:

  • Consult a Tax Professional: Navigating federal and state credits can be tricky, especially for businesses. A tax professional can help ensure you don’t miss any deductions or credits.
  • Keep All Receipts and Documentation: For any home or business energy project, you’ll need proof of the cost of equipment and installation. Keep these records for several years in case of an audit.
  • Be Aware of Changes: Tax credits and incentives can change from year to year as new environmental policies are introduced. Always check the most up-to-date information when filing.

Environmental tax breaks are a great way to reduce the financial burden of going green, but it’s essential to understand the associated tax forms to maximize your savings. Whether you’re a homeowner investing in renewable energy or a business adopting sustainable practices, this guide offers the foundational knowledge you need to navigate the paperwork. Consult with tax professionals and explore both federal and state incentives to fully benefit from available environmental tax credits.

Tax Planning 2023 Tips

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Tax planning for the year 2023 is essential to minimize your tax liability and make the most of available tax benefits. Here are some general tax planning strategies to consider, though it’s important to consult with a tax professional for advice tailored to your specific situation:

1. Maximize Retirement Contributions:
– Contribute the maximum allowed to your retirement accounts, such as 401(k), 403(b), or IRA. These contributions are often tax-deductible and can reduce your taxable income.

2. Take Advantage of Tax-Efficient Investments:
– Invest in tax-efficient assets like index funds, ETFs, and tax-efficient mutual funds to minimize capital gains tax.

3. Consider Tax-Loss Harvesting:
– Review your investment portfolio for opportunities to sell underperforming assets and offset gains with losses to reduce your tax liability.

4. Utilize Tax Credits:
– Be aware of available tax credits, such as the Earned Income Tax Credit, Child Tax Credit, and education-related credits, to lower your overall tax bill.

5. Charitable Contributions:
– Make tax-deductible charitable donations to qualified organizations. Keep records of your contributions for tax purposes.

6. Plan for Education Expenses:
– Utilize tax-advantaged accounts like 529 plans to save for education expenses, and take advantage of education tax credits if applicable.

7. Capital Gains and Dividend Income:
– Be mindful of the tax rates for capital gains and dividend income and plan your investments accordingly.

8. Consider a Roth Conversion:
– Evaluate whether it makes sense to convert traditional retirement accounts to Roth IRAs, which may provide tax-free withdrawals in retirement.

9. Health Savings Accounts (HSAs):
– Maximize contributions to HSAs if you have a high-deductible health plan. Contributions are tax-deductible, and withdrawals for qualified medical expenses are tax-free.

10. Estate Planning:
– If you have a large estate, consult an estate planner to minimize estate taxes and ensure a smooth transfer of assets to your heirs.

11. Business Tax Planning:
– If you own a business, explore tax strategies like the Qualified Business Income Deduction (Section 199A) and consider entity selection to optimize your tax position.

12. Keep Records:
– Maintain accurate records of income, expenses, and all financial transactions to support your tax return and potential deductions.

13. Review Withholding and Estimated Taxes:
– Ensure that your withholding and estimated tax payments align with your expected tax liability to avoid underpayment penalties.

14. Stay Informed:
– Keep up-to-date with changes in tax laws, which may occur annually. Tax planning should adapt to new regulations and opportunities.

15. Consult a Tax Professional:
– Consider seeking advice from a tax professional, such as a CPA or tax advisor, to create a personalized tax plan tailored to your financial situation.

Remember that tax planning should be a year-round effort, not just something to think about at the end of the year. By being proactive and staying informed about tax laws, you can potentially save money and reduce your tax burden.

4 Tips on How Small Businesses Can Reduce Taxes

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As a small business owner, tax liability is the money you owe the government when your business generates income. With changing laws and gray areas regarding deductions, exemptions, and credits, it’s no wonder small business owners rank taxes at the top of the list of the most stress-inducing aspect of business ownership. To reduce that stress, taxes shouldn’t be something to focus on only at year’s end. Use these tips on reducing your business tax year-round and see your taxes and stress level decrease…

1. Business structure

Your company’s business structure is how it is organized – it answers questions like who is in charge, how are profits distributed, and who is responsible for business debt. The most common business structures are:

  • Sole proprietorships have one owner who takes all profits as personal income. The owner is personally liable for any business debts.
  • Partnerships are structured like sole proprietorships but can have an unlimited number of owners.
  • C corporations have unlimited shareholders who each own part of the company. Profits are distributed as dividends between them. Owners are not personally liable for business debts.
  • S corporations are structured like C corporations, but the number of shareholders is capped at 100.

In addition to affecting how a business operates, business structure impacts how much a company pays in taxes. The U.S. tax code is complex and includes four main tax categories:

  • Income tax – paid on profits
  • Employment tax – employee Social Security and Medicare contributions
  • Self-employment tax – Social Security and Medicare contributions for self-employed individuals
  • Excise tax – special taxes for specific goods and services like tobacco, alcohol, etc.

A sole proprietorship or partnership is a good idea for businesses wanting tax simplicity (legal protection discussions are important here as well). For those with less than 100 owners, an S corporation might be the right fit and best tax option. Again, business structure and tax laws are complex and are best determined by a qualified, experienced accountant.

2. Net Earnings

Net earnings (i.e., net income or profit) is the gross business income minus business expenses. Regardless of the business, it begins with gross income (the income received directly by an individual, before any withholding, deductions, or taxes), and allowable expenses are deducted to arrive at net income. How this figure is calculated is dependent upon business structure.

Net earnings are used to calculate business income taxes. Again, the calculation process differs slightly for different business structures. It is best to seek a professional to help with net earnings calculations for the proper calculation and maximum legal deductions.

3. Employ a Family Member

One of the best ways for small business owners to reduce taxes is hiring a family member. The (IRS allows a variety of options for tax sheltering. For example, suppose you hire your child, as a small business owner. In that case, you will pay a lower marginal rate or eliminate the tax on the income paid to your child. Sole proprietorships are not required to pay Social Security and Medicare taxes on a child’s wages. They can also avoid Federal Unemployment Tax Act (FUTA) tax. Consult a trusted accounting professional for details about the benefits of hiring your children or even your spouse.

4. Retirement contributions

Employee retirement plans benefit employees, but they can also be good for your small business. Employer contributions to an employee retirement plan are tax-deductible. They can also carry an employer tax credit for setting up an employee retirement plan. Again, this is a task an accountant can handle for you. They can guide you on retirement plan choices based on your business’s situation, employees, and other factors.

As a small business owner, you can deduct contributions to a tax-qualified retirement account from your income taxes (except for Roth IRAs and Roth 401(k)s). Sole proprietors, members of a partnership, or LLC members can deduct from their personal income contributions to their retirement account.

As with any tax situation, consulting your trusted accounting professional is always best. They are up to date on the latest tax laws, information, and allowable deductions. By being aware of ways your small business can reduce taxes, you can bring these topics up with your accountant, discuss the best options for you, and be prepared long before tax time rolls around.

This only scratches the surface when it comes to tax planning and minimizing taxes while building your wealth. Our team will cater to your goals with a full discussion and tax planning session.

Contact our tax professionals to learn more about how you can control tax exposure for your small business.

Employee Retention Tax Credit

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Eligible employers are entitled to an Employee Retention Tax Credit (ERTC) of up to 70 percent of the first $10,000 in wages and certain health care plan expenses paid per employee for each of the first two quarters of 2021 according to the New Stimulus Act.

What is the Employee Retention Tax Credit (ERTC)?

Designed to incentivize businesses to keep employees on the payroll during the pandemic, the ERTC is a fully-refundable tax credit that is part of the federal government’s COVID-19 relief plan. As part of this plan, the New Stimulus Act includes the Taxpayer Certainty and Disaster Tax Relief Act of 2020, which became effective January 1, 2021. This Act amends and extends the former ERTC and the availability of advance payments of the tax credits under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Is My Company Eligible for the ERTC?

Previously, employers could only take advantage of the Paycheck Protection Program (PPP) OR the ERTC, so the ERTC was not widely used. However, Congress revised this provision to make both plans available to qualifying businesses.

As of December 2020, small businesses (with 500 or fewer employees) that suffered a revenue reduction in 2020 can claim the ERTC. A revenue reduction specifically means a business experienced a decline in gross receipts by more than 20 percent in any quarter of 2020 compared to the same quarter in 2019. (Note this is a change from the previous ERTC rule that required a gross receipts decline of at least 50 percent.)

Further, the tax credit applies to employers, including tax-exempt organizations, that conducted business during 2020 and were forced to fully or partially suspend operation during any quarter due to government orders related to COVID-19, according to the Internal Revenue Service (IRS).

How is the Maximum Amount of ERTC Determined?

As mentioned, under the New Stimulus Act, eligible employers are entitled to a tax credit equal to 70 percent of the first $10,000 in wages and qualifying health plan expenses paid per employee for each of the first two quarters of 2021 (up to $14,000).

Note that the combined maximum $14,000 credit for the first two quarters of 2021 is available even if the employer previously received the $5,000 maximum credit for wages paid in 2020.

In addition to the aforementioned changes to the ERTC, the wage period has been extended. Under the New Stimulus Act, qualified wages are those paid after March 12, 2020 up until July 1, 2021. The previous cutoff date was January 1, 2021.

What are Qualified Wages?

Qualified wages are wages, compensation, and qualified health plan expenses paid by an eligible employer after March 12, 2020 and before July 1, 2021 for time that the employee did not provide services due to a full or partial COVID-19-related government suspension of operations OR a 20 percent or greater decline in gross receipts.

For specific determinants, see sections 3121(a) and 3231(e) of the Internal Revenue Code.

The determination of qualified health plan expenses is the same as qualified health plan expenses for the Family and Medical Leave Tax Credit under the Families First Coronavirus Response Act.

Number of Employees Matters

Under the CARES Act, companies with 100 or fewer employees were eligible for the ERTC; however, under the New Stimulus Act, the threshold increased to 500 employees. In other words, for the first two quarters of 2021, a company with 500 or fewer employees is eligible for the ERTC. This is true whether those employees are working or not.

Other Notable Changes to the ERTC

  • Previously, governmental entities were not eligible for the ERTC under the CARES Act; however, under the New Stimulus Act this tax credit is available to state or local run colleges, universities, and organizations providing medical or hospital care.
  • While the New Stimulus Act allows businesses with a PPP loan to qualify for the ERTC, the tax credit may not be claimed on wages paid with the PPP loan that has been or will be forgiven.

Please reach out to us to discuss the qualifications of the ERTC for your business!

Filed Under: Tax

2020 Year-End Tax-Planning Moves for Businesses & Business Owners

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2020 year end is now!  There is still time to consider final moves for tax planning purposes that you as a business owner may want to take.  Below is a summary of strategies that are recommended. If you want to consider these or look at more advanced tax strategies, be sure to contact us today!

Taxpayers other than corporations may be entitled to a deduction of up to 20% of their qualified business income. For 2020, if taxable income exceeds $326,600 for a married couple filing jointly, $163,300 for singles, marrieds filing separately, and heads of household, the deduction may be limited based on whether the taxpayer is engaged in a service-type trade or business (such as law, accounting, health, or consulting), the amount of W-2 wages paid by the trade or business, and/or the unadjusted basis of qualified property (such as machinery and equipment) held by the trade or business. The limitations are phased in; for example, the phase-in applies to joint filers with taxable income between $326,600 and $426,600, and to all other filers with taxable income between $163,300 and $213,300.

Taxpayers may be able to achieve significant savings with respect to this deduction, by deferring income or accelerating deductions so as to come under the dollar thresholds (or be subject to a smaller phaseout of the deduction) for 2020. Depending on their business model, taxpayers also may be able increase the new deduction by increasing W-2 wages before year-end. The rules are quite complex, so don’t make a move in this area without consulting your tax adviser.

An analysis of electing S Corporation is something our firm can perform to determine if your Company would fit this model or is better suited in another model or it’s current model.  A variety of considerations go into the analysis in determining if moving to an S Corporation for tax purposes makes sense.

More small businesses are able to use the cash (as opposed to accrual) method of accounting in than were allowed to do so in earlier years. To qualify as a small business a taxpayer must, among other things, satisfy a gross receipts test. For 2020, the gross-receipts test is satisfied if, during a three-year testing period, average annual gross receipts don’t exceed $26 million (the dollar amount was $25 million for 2018, and for earlier years it was $1 million for most businesses). Cash method taxpayers may find it a lot easier to shift income, for example by holding off billings till next year or by accelerating expenses, for example, paying bills early or by making certain prepayments.

Businesses should consider making purchases that qualify for the accelerated depreciation options. For tax years beginning in 2020, the depreciation limit is $1,040,000, and the investment ceiling limit is $2,590,000. The expense is generally available for most capital property and off-the-shelf computer software. It is also available for qualified improvement property (generally, any interior improvement to a building’s interior, but not for enlargement of a building, elevators or escalators, or the internal structural framework), for roofs, and for HVAC, fire protection, alarm, and security systems.

The generous dollar thresholds mean that many small and medium sized businesses that make timely purchases will be able to currently deduct most if not all their outlays for certain vehicles, machinery, and equipment. What’s more, the depreciation deduction is not prorated for the time that the asset is in service during the year. The fact that the deduction may be claimed in full (if you are otherwise eligible to take it) regardless of how long the property is in service during the year can be a potent tool for year-end tax planning. Thus, property acquired and placed in service in the last days of 2020, rather than at the beginning of 2021, can result in a full deduction for 2020.

The consideration is if the deduction is not needed, the asset could either be placed in service in 2021 or the depreciation will be taken over the allowed life of the asset giving you a tax benefit each year for 3, 5, 7 plus years.

Businesses also can claim a 100% bonus first year depreciation deduction for machinery and equipment bought used (with some exceptions) or new if purchased and placed in service this year, and for qualified improvement property, described above as related to the depreciation deduction. The 100% write-off is permitted without any proration based on the length of time that an asset is in service during the tax year. As a result, the 100% bonus first-year write-off is available even if qualifying assets are in service for only a few days in 2020.

Businesses may be able to take advantage of the de minimis safe harbor election (also known as the book-tax conformity election) to expense the costs of lower-cost assets and materials and supplies, assuming the costs don’t have to be capitalized under the Code Sec. 263A uniform capitalization (UNICAP) rules. To qualify for the election, the cost of a unit of property can’t exceed $5,000 if the taxpayer has an applicable financial statement (AFS; e.g., a certified audited financial statement along with an independent CPA’s report). If there’s no AFS, the cost of a unit of property can’t exceed $2,500. Where the UNICAP rules aren’t an issue, consider purchasing such qualifying items before the end of 2020.

A corporation (other than a large corporation) that anticipates a small net operating loss (NOL) for 2020 (and substantial net income in 2021) may find it worthwhile to accelerate just enough of its 2021 income (or to defer just enough of its 2020 deductions) to create a small amount of net income for 2020. This will permit the corporation to base its 2021 estimated tax installments on the relatively small amount of income shown on its 2020 return, rather than having to pay estimated taxes based on 100% of its much larger 2021 taxable income.

To reduce 2020 taxable income, consider disposing of a passive activity in 2020 if doing so will allow you to deduct suspended passive activity losses.  A typical passive activity would be investment real estate or investment in a business that you have no participation.

These are just some of the basic year-end steps that can be taken to save taxes. There are a number of expired tax regulations that have been reconsidered due to COVID-19 that could potentially save you in taxes from prior years.  Again, by contacting us, we can tailor a particular plan that will work best for you and provide a prior year tax review for free!

2020 Tax Planning Moves for Individuals

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Now, as year-end approaches, is a good time to think about planning moves that may help lower your tax bill for this year and possibly next. Year-end planning for 2020 takes place during the COVID-19 pandemic, which in addition to its devastating health and mortality impact has widely affected personal and business finances.

We have compiled a list of actions based on current tax rules that may help you save tax dollars if you act before year-end. Not all actions will apply in your particular situation, but you (or a family member) will likely benefit from many of them. We can narrow down the specific actions that you can take once we meet with you to tailor a particular plan. In the meantime, please review the following list and contact us at your earliest convenience so that we can advise you on which tax-saving moves to make…

-Higher-income earners must be wary of the 3.8% surtax on certain unearned income. The surtax is 3.8% of the lesser of: (1) net investment income (NII), or (2) the excess of modified adjusted gross income (MAGI) over a threshold amount ($250,000 for joint filers or surviving spouses, $125,000 for a married individual filing a separate return, and $200,000 in any other case).

As year-end nears, a taxpayer’s approach to minimizing or eliminating the 3.8% surtax will depend on his estimated MAGI and NII for the year. Some taxpayers should consider ways to minimize (e.g., through deferral) additional NII for the balance of the year, others should try to see if they can reduce MAGI other than NII, and other individuals will need to consider ways to minimize both NII and other types of MAGI. An important exception is that NII does not include distributions from IRAs and most other retirement plans.

-Long-term capital gain from sales of assets held for over one year is taxed at 0%, 15% or 20%, depending on the taxpayer’s taxable income. If you hold long-term appreciated-in-value assets, consider selling enough of them to generate long-term capital gains that can be sheltered by the 0% rate. The 0% rate generally applies to the excess of long-term capital gain over any short-term capital loss to the extent that, when added to regular taxable income, it is not more than the maximum zero rate amount (e.g., $80,000 for a married couple).

If the 0% rate applies to long-term capital gains you took earlier this year for example, you are a joint filer who made a profit of $5,000 on the sale of stock held for more than one year and your other taxable income for 2020 is $75,000 then try not to sell assets yielding a capital loss before year-end, because the first $5,000 of those losses won’t yield a benefit this year. (It will offset $5,000 of capital gain that is already tax-free.)

-Postpone income until 2021 and accelerate deductions into 2020 if doing so will enable you to claim larger deductions, credits, and other tax breaks for 2020 that are phased out over varying levels of adjusted gross income (AGI). These include deductible IRA contributions, child tax credits, higher education tax credits, and deductions for student loan interest. Postponing income also is desirable for taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances. Note, however, that in some cases, it may pay to actually accelerate income into 2020. For example, that may be the case for a person who will have a more favorable filing status this year than next (e.g., head of household versus individual filing status), or who expects to be in a higher tax bracket next year.

-If you believe a Roth IRA is better than a traditional IRA, consider converting traditional-IRA money invested in any beaten-down stocks (or mutual funds) into a Roth IRA in 2020 if eligible to do so. Keep in mind, however, that such a conversion will increase your AGI for 2020, and possibly reduce tax breaks geared to AGI (or modified AGI).

-It may be advantageous to try to arrange with your employer to defer, until early 2021, a bonus that may be coming your way. This could cut as well as defer your tax.

-Many taxpayers won’t be able to itemize because of the high basic standard deduction amounts that apply for 2020 ($24,800 for joint filers, $12,400 for singles and for marrieds filing separately, $18,650 for heads of household), and because many itemized deductions have been reduced or abolished. Like last year, no more than $10,000 of state and local taxes may be deducted; miscellaneous itemized deductions (e.g., tax preparation fees and unreimbursed employee expenses) are not deductible; and personal casualty and theft losses are deductible only if they’re attributable to a federally declared disaster and only to the extent the $100-per-casualty and 10%-of-AGI limits are met.

You can still itemize medical expenses but only to the extent they exceed 7.5% of your adjusted gross income, state and local taxes up to $10,000, your charitable contributions, plus interest deductions on a restricted amount of qualifying residence debt, but payments of those items won’t save taxes if they don’t cumulatively exceed the standard deduction for your filing status. Two COVID-related changes for 2020 may be relevant here: (1) Individuals may claim a $300 above-the-line deduction for cash charitable contributions on top of their standard deduction; and the percentage limit on charitable contributions has been raised from 60% of modified adjusted gross income (MAGI) to 100%.

Some taxpayers may be able to work around these deduction restrictions by applying a bunching strategy to pull or push discretionary medical expenses and charitable contributions into the year where they will do some tax good. For example, a taxpayer who will be able to itemize deductions this year but not next will benefit by making two years’ worth of charitable contributions this year, instead of spreading out donations over 2020 and 2021. The COVID-related increase for 2020 in the income-based charitable deduction limit for cash contributions from 60% to 100% of MAGI assists in this bunching strategy, especially for higher income individuals with the means and disposition to make large charitable contributions.

-Consider using a credit card to pay deductible expenses before the end of the year. Doing so will increase your 2020 deductions even if you don’t pay your credit card bill until after the end of the year.

-If you expect to owe state and local income taxes when you file your return next year and you will be itemizing in 2020, consider asking your employer to increase withholding of state and local taxes (or pay estimated tax payments of state and local taxes) before year-end to pull the deduction of those taxes into 2020. But remember that state and local tax deductions are limited to $10,000 per year, so this strategy is not good to the extent it causes your 2020 state and local tax payments to exceed $10,000.

-Required minimum distributions (RMDs) that usually must be taken from an IRA or 401(k) plan (or other employer-sponsored retirement plan) have been waived for 2020. This includes RMDs that would have been required by April 1 if you hit age 70½ during 2019 (and for non-5% company owners over age 70½ who retired during 2019 after having deferred taking RMDs until April 1 following their year of retirement). So if you don’t have a financial need to take a distribution in 2020, you don’t have to. Note that because of a recent law change, plan participants who turn 70½ in 2020 or later needn’t take required distributions for any year before the year in which they reach age 72.

-If you are age 70½ or older by the end of 2020, have traditional IRAs, and especially if you are unable to itemize your deductions, consider making 2020 charitable donations via qualified charitable distributions from your IRAs. These distributions are made directly to charities from your IRAs, and the amount of the contribution is neither included in your gross income nor deductible on Schedule A, Form 1040.

However, you are still entitled to claim the entire standard deduction. (Previously, those who reached reach age 70½ during a year weren’t permitted to make contributions to a traditional IRA for that year or any later year. While that restriction no longer applies, the qualified charitable distribution amount must be reduced by contributions to an IRA that were deducted for any year in which the contributor was age 70½ or older, unless a previous qualified charitable distribution exclusion was reduced by that post-age 70½ contribution.)

-If you are younger than age 70½ at the end of 2020, you anticipate that you will not itemize your deductions in later years when you are 70½ or older, and you don’t now have any traditional IRAs, establish and contribute as much as you can to one or more traditional IRAs in 2020. If these circumstances apply to you, except that you already have one or more traditional IRAs, make maximum contributions to one or more traditional IRAs in 2020. Then, in the year you reach age 70½, make your charitable donations by way of qualified charitable distributions from your IRA. Doing this will allow you, in effect, to convert nondeductible charitable contributions that you make in the year you turn 70½ and later years, into deductible-in-2020 IRA contributions and reductions of gross income from later year distributions from the IRAs.

-Take an eligible rollover distribution from a qualified retirement plan before the end of 2020 if you are facing a penalty for underpayment of estimated tax and having your employer increase your withholding is unavailable or won’t sufficiently address the problem. Income tax will be withheld from the distribution and will be applied toward the taxes owed for 2020. You can then timely roll over the gross amount of the distribution, i.e., the net amount you received plus the amount of withheld tax, to a traditional IRA. No part of the distribution will be includible in income for 2020, but the withheld tax will be applied pro rata over the full 2020 tax year to reduce previous underpayments of estimated tax.

-Consider increasing the amount you set aside for next year in your employer’s health flexible spending account (FSA) if you set aside too little for this year and anticipate similar medical costs next year.

-If you become eligible in December of 2020 to make health savings account (HSA) contributions, you can make a full year’s worth of deductible HSA contributions for 2020.

-Make gifts sheltered by the annual gift tax exclusion before the end of the year if doing so may save gift and estate taxes. The exclusion applies to gifts of up to $15,000 made in 2020 to each of an unlimited number of individuals. You can’t carry over unused exclusions from one year to the next. Such transfers may save family income taxes where income-earning property is given to family members in lower income tax brackets who are not subject to the kiddie tax.

-If you were in federally declared disaster area, and you suffered uninsured or unreimbursed disaster-related losses, keep in mind you can choose to claim them either on the return for the year the loss occurred (in this instance, the 2020 return normally filed next year), or on the return for the prior year (2019), generating a quicker refund.

-If you were in a federally declared disaster area, you may want to settle an insurance or damage claim in 2020 in order to maximize your casualty loss deduction this year.

Tax planning is unique to each situation and may involve us discussing your situation with the other professionals on your team. Contact us today to get started discussing the strategies that make sense for you!