Top 10 Tax Tips for End of the Year and Beyond

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I heard a joke recently that pretty much sums up this year: “The dumbest thing I ever bought was a 2020 planner”. Be that as it may, and even though it’s been a year full of surprises, we still face the certainty of having to do our taxes. As such, and in no particular-order, I’ve assembled some planning tips to help you as we approach the end of a remarkable year.


Corona Virus Tax Related Issues

  1. The stimulus check and your taxes
    Keep in mind that the economic impact payment (stimulus payment) is like a “prepaid tax credit” and, is not considered taxable income. Therefore, the payment should not increase or decrease your tax bill.  

    Also, when you calculate your taxes for the 2020 tax year, you might find that you received more than you were eligible to receive. In this case, the IRS says there is no “claw-back” provision, and you will not owe more tax. However, since the payments were based on 2018 or 2019 income, it’s possible that you received less that the full amount. In this case, the IRS will allow you to claim an additional refund for the 2020 tax year.
  1. Still time for Coronavirus-related distributions (CRDs) by December 30, 2020
    As part of the CARES Act, you may receive favorable tax treatment for up to $100,000 of coronavirus related distributions from eligible retirement plans. According to the IRS, a coronavirus-related distribution is a distribution that is made from an eligible retirement plan, such as a 401(k) and 403(b), and IRA, to a qualified individual from January 1, 2020, to December 30, 2020, up to an aggregate limit of $100,000 from all plans and IRAs. 


  1. Required minimum distributions (RMDs) are waived for 2020
    In previous years, we would always warn folks 70-1/2 and older to be sure and take their RMDs before year end. However, the CARES Act waived RMDs for 2020 from IRAs, inherited IRAs (traditional and Roth), and employer retirement plans.  For those who received an RMD in 2020, and wanted to put it back, IRS Notice 2020-51 allowed you until August 31, 2020 to rollover all previously distributed 2020 RMDs. Some folks may still want to consider taking their RMD this year if they find themselves in a low tax bracket now versus a higher bracket down the road.



Retirement Planning

  1. Maximize employer 401(k) match opportunities
    You have until December 31 to make pretax contributions to your employer retirement plans, thereby reducing your taxable income. The contribution limit in 2020 is $19,500 ($26,000 if you’re age 50 or older) for retirement plans such as a 401(k), 403(b), or Thrift Savings Plan (TSP). Even if you are unable to make the maximum contribution, consider adding at least the minimum to meet your employer’s match, if offered. Or, you have until April 15 next year to contribute to an IRA that allows contributions up to $6,000 for 2020 (or $7,000 if you’re age 50 or older) and and may be deductible depending on your circumstances.


  1. Consider converting traditional IRAs to Roth IRAs
    If you’ve been thinking about converting a traditional IRA or pre-tax 401(k) funds to a Roth IRA, this may be a good year to do it, especially if you experienced a temporary hit to your income. Of course, conversions generate immediate taxable income, but the idea is that you may be locking in a lower tax burden today versus a higher tax bite in the future. The math and the assumptions for a conversion can be tricky, but a quick rule of thumb is that a Roth conversion can make the most sense for those with a longer time-horizon, a higher anticipated rate of return on the investment, and a higher future tax rate versus today. You can use online calculators to see how a conversion may work for you, such as USAA’s Roth IRA Conversion Calculator.


Education, Childcare, & Dependents

  1. 529 Education-Savings contributions
    One of the changes from the Tax Cuts and Jobs Act of 2017 (TCJA) Is that distributions from 529 plans can now be used to pay up to a total of $10,000 of tuition per beneficiary (regardless of the number of contributing plans) each year at an elementary or secondary (k-12) public, private or religious school of the beneficiary’s choosing”, according to the IRS. However, when it comes to financial aid, 529 plans owned by college students or their parents are counted as assets that can reduce the need-based aid. Also, 529 plan withdrawals by non-custodial parents and plans held by grandparents may also count as income against financial aid.

    With these caveats in mind, a 529 plan may still make sense due to the tax deferred growth in the plans, and tax-free withdrawals for qualified expenses. Also, some states that impose a state income tax, may also offer a deduction or credit for 529 plan contributions. It’s important to check if your state offers a tax benefit for 529 plans. The deadline for making a deductible contribution for most states is December 31, although for a few it’s April 15 of the following year.



  1. Don’t overlook childcare tax credits
    Although this is not a year-end planning tip, some folks may overlook the valuable childcare tax credit when doing their taxes. Basically, if you incur the expense for someone else to care for your children or another dependent, you may qualify for the child and dependent care credit. Credits are generally better than deductions because they reduce your tax bill dollar for dollar. The IRS does put a cap on the dollar amount of expenses you can claim, and defines who is considered a “qualifying individual”. It’s important to review all expenses that might be applied for this credit.


Charitable Giving

  1. Charitable contributions
    $300 charitable deduction for non-itemizers - As a result of the Tax Cuts and Jobs Act of 2017 (TCJA), the standard deduction for 2020 is now $12,400 for a single filer, and $24,800 for those married filing jointly. As a result, more folks are claiming the standard deduction versus itemizing. However, in order to make a  deductible charitable contribution you need to itemize. Enter the CARES Act, Section 2204, which permits eligible individuals (for the 2020 tax year) who don’t itemize, to be able to deduct up to $300 of qualified charitable contributions as a reduction to adjusted gross income (AGI). There are rules and limitations to qualify, and contributions must be made in cash, and donations must be made by the end of the year.

    Bunching charitable contributions – Given the higher threshold for itemizing deductions, taxpayers can also plan their charitable giving for years when they have higher deductible expenses, or by deciding to “bunch” their charitable contributions for targeted years instead of every year. This strategy could be accomplished by donating various property or through donor advised funds. Again, qualified donations must be made before the end of the year in order to be deductible.


  1. Qualified Charitable Distributions (QCDs)
    You might remember something about the Setting Every Community Up for Retirement Enhancement Act (“SECURE Act”) of 2019 increasing the age in which you need to start RMDs from age 70-1/2 to age 72. Even with this change, QCDs remain a viable tax break for charitably inclined clients. IRA owners who are at least 70-1/2 can transfer up to $100,000 to charity directly from their IRA. Although donors would not receive a direct tax deduction for the gift to charity, they would avoid the federal income tax on the distribution. In addition, by not including the RMD, the taxpayer lowers their AGI, making it possible to enjoy other deductions subject to AGI limitations and may reduce the income used in computing their Medicare Part B premium. Again, the due date for making a QCD is December 31st. See the IRS IRA FAQs section on Qualified charitable distributions for more information.


Donate to Yourself

  1. Plan on how to best use a refund for you and your family
    Once tax time is over and all the receipts and 1099s are filed away, it may be time to think about enjoying life again, especially if you’re due a refund.  Although there are a million things you could spend your refund on, recent research indicates that we tend to be happier when we spend our money on experiential purchases versus material ones. This is the case even though we typically spend more time using our material possessions than we do with experiences. So, maybe go ahead and earmark your return for that family trip you’ll talk about for years to come.

    Whatever you do with your refund, enjoy it while you can, because no matter what, tax time will be back again next year.


Other Resources

Check out additional tax filing resources from the IRS:, and videos:

Free Help Preparing your Tax Return  –  EnglishSpanish | ASL

Interactive Tax Assistant – EnglishASL

Choose a Tax Preparer Wisely – EnglishSpanish | ASL

Get free help with tax filing (TCE & VITA)


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Briana Hartzell USAA

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