Even though 2020 has been a weird year for tax filing (refund checks not going out until July!), the 2020-2021 tax season is almost upon us! With additional fallout from the 2017 Tax Cuts and Jobs Act (TCJA) continuing to be felt, there are new challenges and considerations that require your attention for this year and the years to come. Not only are there recent changes being implemented this year, but there are also some potential changes coming in the future that need your attention for your long-term tax outlook.
Start Planning Now
A priority with every tax season should revolve around getting a head start on planning your tax strategy. People procrastinate until the last possible minute to organize their taxes, and they scramble to get their taxes filed before the April deadline. While it seems like starting to plan now is an overcorrection, there are benefits to starting better financial planning now.
What to Consider for the 2020-2021 Tax Season
With tax season rapidly approaching, there are some new and different factors that you can take into consideration to maximize your tax return. While every person’s situation is different and unique to them, using this list as a guide can prioritize your tax strategy elements. The following infographic provides a brief overview of the changes enacted by TCJA:
Itemized vs. Standard Deductions
This year will see an increase in the standard deductions for individuals, married couples filing separately, heads of household, and married couples jointly filing. A combination of the higher standard deduction and lower tax rates could potentially lead to itemized deductions being the preferred route to take. It’s recommended that you have your tax attorney help crunch the numbers before making your ultimate decision.
Changes to the tax code affected how many people utilized charitable contribution write-offs regarding their taxes. For filers that are active in donating to charities, a way to organize your charitable donations to make them work for you during the coming tax season is to “bunch” the donations together. This way, you consolidate the contributions you have made over the past year with other deductions to ensure that they exceed the total for the standard deductions.
Reviewing Home Equity Debt Interest
With the passage of the TCJA, homes that have had mortgages taken out between October 13, 1987, through December 16, 2017, can have these mortgages as fully deductible up to the first $1,000,000 of mortgage debt. The new changes that are being made under the TCJA regarding mortgages and your taxes will affect mortgages taken out between 2018 through 2025.
Revisiting Qualified Tuition Plans
529 plans, otherwise known as qualified tuition plans, offer people a path to efficiently plan how to cover the financial burden of putting your children or grandchildren through primary and secondary school. The changes made to the 529 plan enable these plans to be used to pay tuition at a wider variety of schools for their children. Contributions made to a 529 plan are considered completed gifts for federal tax purposes. For 2020, donors can receive up to $15,000 per beneficiary as an annual gift tax exclusion.
Maximizing Qualified Business Income Deduction
One of the most talked-about additions made in the TCJA was the inclusion of qualified business income deductions. Taxpayers that own a business, LLC, or S corporation can deduct 20% of their qualified business income on their taxes. Business owners will have to formulate specific strategies around these potential deductions and how it impacts the status of any independent contractors they may have, and whether it will be more beneficial to make them full-fledged employees.
With the TCJA bringing a slew of new wrinkles to this year’s tax season, having a concrete plan of attack is more important than ever. Total Resource Financial can help you with expert tax planning as well as offer financial advice for retirement. Contact our team today to learn more about how we can help you make the most of this tax season!