Lansing, Mich. (WLNS)– It’s a bit unusual to be talking about taxes in the summertime, but like many other changes we’ve seen result from the pandemic, the 20-20 tax deadline is one of them.
Financial Professional Chris Berry from Castle Wealth Group shared his tax planning tips, number one being don’t wait until the last minute.
“You don’t want the internal revenue service coming after you because you made a mistake,” Berry said.
There is the option to request a filing extension through October 15th, but if you owe money to the IRS the extension to file will not push back when that payment is due.
“You need to have your payments in by July 15th, so, because otherwise you’re going to have penalties and charges,” Berry said.
He added, wrong calculations could cause a delay in your refund or flag you for an audit.
So, should you file on your own, or hire an expert?
“If it becomes too complex or you feel like you’re missing opportunities, then I would always recommend you find a professional,” Berry said.
He added, it’s important to find someone who doesn’t just look at one specific year, but a professional that looks at how they can minimize your tax payments over your lifetime, and for future generations.
Read more tips from Berry below:
Q: LOOKING TO THE FUTURE, WHAT TAX PLANNING TIPS DO YOU HAVE FOR US?
Adjust Your Withholding
- Perhaps the biggest or most noticeable changes to the tax code are the new, lower income tax rates, which prompted changes to the IRS withholding tables.
- If you owed money to the IRS last year, take time now to review and update your W-4. This form determines how much income tax is withheld from your paycheck.
- Adjusting your withholding now won’t help with your 2019 tax return, but it will impact your 2020 taxes.
- There is an IRS calculator to help you determine your correct withholding.
Maximize Retirement Contributions
- When you contribute to your 401(k) or traditional IRA, you are reducing your taxable income for the year.
- The money you put into these accounts also grows tax deferred until you withdraw it in retirement.
- Besides the tax benefits, maxing out your contributions is an important part of increasing your retirement security.
Diversify Your Savings
- It’s important to diversify your savings!
- Tax-deferred accounts like your 401(k) and traditional IRA offer tax advantages now. Tax-free savings options offer tax advantages later.
- An account like a Roth IRA will give you tax diversification; your money is taxed upfront, but you can withdraw it tax-free in retirement.
- You may want to consider converting money from a traditional IRA or a previous employer’s 401(k) into a Roth IRA. We are in a historically low tax environment with the new tax law, meaning now might be a good time to consider moving money into a Roth.
Plan for Charitable Giving
- Getting a tax deduction has always been an incentive for people to give to charity, but you only get that deduction if you itemize your taxes.
- The new tax law nearly doubled the standard deduction, so fewer people are itemizing their deductions.
- To make the most of your charitable donations, consider using the “bunching” strategy. Instead of giving to charity every year, give twice as much every other year.
- Bunching may or may not work for your personal situation, depending on how much you plan to donate and how close you are to exceeding the threshold for the standard deduction.
- Talk with your financial professional and your tax professional to find a strategy that works best for you.
Q: RETIREES ARE IN A UNIQUE SITUATION WHEN IT COMES TO TAXES RIGHT NOW. WHAT DO THEY NEED TO KNOW?
- The CARES Act suspends required minimum distributions (or RMDs) from tax-deferred retirement accounts for 2020, allowing those who are 72 and older to forgo taking a required withdrawal from their account this year.
- This might provide a significant tax break as retirees can leave money in their accounts and will not have to pay taxes on the distribution.
- The CARES Act also allows for a $300 “above the line” deduction for charitable donations made in cash this year.
- The new law also increases how much people can give of their adjusted gross income. Normally the limit is 60% of a person’s AGI. The new provision allows cash gifts of up to 100% of adjusted gross income in 2020.
- Remember, giving this year will have an impact when you go to file your taxes next year.