With 2020 winding down, here are ideas to reduce your tax burden this year.
Leverage Pre-Tax Savings: Take advantage of opportunities to set aside income on a pre-tax basis including:
-Participation in your employer’s retirement savings plan.
-Fully funding Health Savings Accounts(HSA) and Flex Benefits
Accounts that allow using pre-tax earnings to pay for childcare
and out-of-pocket medical costs. remember, however, unlike
HSAs it is important to use up any funds in your Flex health care
accounts and dependent care accounts prior to the end of the
plan year as any unused funds will be forfeited.
-Take full advantage of employee benefits like pre-tax child care,
parking reimbursements, and any tuition reimbursement
-Paying any healthcare costs with pre-tax dollars.
Defer Income And Accelerate Deductions
A key portion of the new Tax Cuts and Jobs Act (TCJA) is Section 199A and its deduction of qualified business income. Section 199A allows taxpayers other than corporations a deduction of 20 percent of qualified business income that is earned in a qualified trade or business, though this has some limitations. There are both positive and negative aspects to the changes depending on your situation.
Tax Adviser outlines the following crucial points about Section 199A:
- The deduction is limited to the greater of
(1) 50% of the W-2 wages with respect to the trade or business or
(2) the sum of 25% of the W-2 wages, plus 2.5% of the unadjusted basis immediately after acquisition of all qualified property (generally, tangible property subject to depreciation under Sec. 167). In addition, the deduction also may not exceed (1) taxable income for the year over (2) net capital gain plus aggregate qualified cooperative dividends.