New for This Year

Between the SECURE Act, the CARES Act, and the new Covid Relief bill, there have been many tax changes this year that affect your 2020 returns.

New Charitable Contribution Deduction

Normally, you must itemize your deductions to deduct charitable contributions. However, for 2020 you can donate up to $300 to your church or favorite charity and receive a tax deduction even if you don’t itemize. This deduction is for monetary donations only, not items. Click here for more details.

Withdraw or borrow from your IRA or 401(k)

Usually if you withdraw money from your IRA or 401(k) before age 59½, you have to pay a 10% early withdrawal penalty in addition to regular taxes on the amount you take out. But this year, the 10% penalty is waived for Coronavirus-related withdrawals up to $100,000. You still have to pay the regular tax on the amount you withdraw.

Or do you? Now you have up to 3 years to pay back the amount you took out, in which case you do not have to pay any taxes whatsoever on the amount you paid back. Even if you do not pay it back, you can spread out the taxes you owe over the next 3 years.

These breaks apply only to withdrawals from retirement accounts made between January 1 and December 30, 2020.

Defer your self-employment tax

If you are a self-employed, independent contractor or gig worker, you know that much of the tax you pay each year is the dreaded “self-employment tax”, which is actually your contribution to Social Security and Medicare taxes. For your 2020 self-employment income, you can defer paying 50% of the social security part of this tax over the next 2 years. This will result in a substantial savings in the taxes you need to pay by April 15. If you are in this situation, I will advise you on how to take best advantage of this important tax break.

There are many other breaks you are eligible for this year if you are self-employed. Did you know you can pay yourself Coronavirus-related Sick Pay and Family Leave Pay, tax-free? This is another huge tax break for small businesses and self-employed people.

And there are more! Do not miss out! Only a professional tax preparer can make sure that you get all the breaks you are entitled to. These savings alone could cover the cost of your tax preparation many times over.