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2020 Year-End Tax-Saving Opportunities for Individuals and Businesses
by Expert Contributor Jack Del Pizzo, CPA, Owner of Del Pizzo & Associates
For 2020 only, you can deduct contributions to most charities equal to 100% of your income but only if you contribute cash. Normally, the maximum deduction is limited to 60%, so if you’re considering a large one-time contribution, 2020 may be the year to do that. The rules are complicated, and not all charities qualify, so discuss this with your tax advisor.
If you are at least age 70½, you can make a Qualified Charitable Distribution (QCD) up to $100,000 from a traditional IRA to a charity. Unlike normal IRA distributions, a QCD is not taxable to the IRA owner.
The maximum contribution to qualified retirement plans for 2020 is $19,500 for 401(k), 403(b) and 457 plans, plus an extra $6,500 catch-up contribution if you are at least age 50. For SIMPLE Plans, the max contribution is $13,500 plus an extra $3,500 catch-up. And for a traditional IRA, the max contribution is $6,000 plus an extra $1,000 catch-up. Contributions to retirement plans and IRAs are subject to phase-outs based on your income. Other complicated limitations may apply. Your tax advisor can clarify and guide you on this.
Starting in 2020, traditional IRA owners can make contributions regardless of their age. The previous maximum age for contributions was 70½.
Required Minimum Distributions (RMDs) to qualified retirement plan participants and traditional IRA owners must begin at age 72. The good news is that for 2020, all RMDs are waived.
Also in 2020, the normal 10% penalty for distributions from retirement plans and IRAs before you are 59½ is waived for up to $100,000 of coronavirus-related distributions. The income tax on these distributions can be spread over three years. Amounts re-contributed within three years will not be taxable.
These rules and definitions are very complicated, and should definitely be discussed with your tax advisor.
If you have a business loss in 2018, 2019 or 2020 from a sole proprietorship, partnership, LLC or S Corporation, you may be able to receive cash refunds by carrying the loss back five years. Under prior law, loss carrybacks were prohibited, which meant you could only receive tax relief in the future, if ever. If you had a business loss in 2019, you should speak to your tax advisor about filing IRS Form 1045 by December 31, to receive a “Quick Refund” of taxes paid in 2014 through 2018.
A qualified business income (QBI) deduction of 20% is allowed for income from a sole proprietorship, partnership, S Corporation and LLC. For example, a business reports $100,00 of income after expenses but only pays tax on $80,000 after the QBI deduction. Your tax advisor can explain options and recommended actions based on your specific situation.
Expert Contributor Jack Del Pizzo, Marple Newtown's Expert CPA and Owner of Del Pizzo & Associates
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