Keeping track of income and expenses is essential, even if you don't own a business. And if you do own a business, things get even more complicated. There are paychecks to issue, taxes to track, and subcontractors to pay out. All of these details are a whole lot less challenging when you hire an accountant to oversee them. However, it is still important to know a little bit about accounting yourself. Dig into the articles on this website, and you'll gain a better understanding of accounting principles, what services accountants really offer, and the benefits of hiring these professionals to assist with your finances.
The end of the year is fast approaching, which means that your ability to take steps to help you during next year's tax season is quickly coming to an end as well. You will want to make sure you are prepared for the tax season by putting the right planning in place.
Smart Planning Tip #1: Get in Your Charity Donation
As part of the CARES Act this year, you can take an above-the-line deduction of up to $300 for any cash donation made to a charity, even if you don't itemize your taxes. In the past, you needed to itemize your taxes to take a charitable deduction.
This is a one-time change to the tax code, so if you have a charity you want to donate to, get your donation in before the end of the year, and keep your receipt so you can take this above-the-line tax deduction.
Smart Planning Tip #2: Stimulus Check
Next, you need to make sure you understand the CARES Act stimulus check's impact, which gave $1,200 to individual taxpayers, and up to $500 per child dependent. This stimulus was written to be a tax credit for 2020, even though the distribution of the check is based on either 2018 or 2019 tax returns.
The money you got is considered a tax credit that is not considered part of your income.
Smart Planning Tip #3: Contribute to Your 401(k)
If you want to contribute to your 401(k), you will need to make those contributions before the end of the year. In the year 2020, you can contribute up to $19,500 and have it deducted from your taxes. If you are over 50, you can contribute an additional $6,500 to your 401(k), for a total of $26,000. This limit also applies to 403(b) and most 457 plans.
Smart Planning Tip #4: Make a Hardship Withdraw
If you have been facing unemployment or reduce hours this year, you can dip into your retirement fund through Dec. 31 without having to pay the normal penalties fees you would normally have to pay for accessing retirement money before you reach retirement age. You can withdraw up to $100,000 without having to pay an early withdrawal penalty. This is another part of the CARES Act.
Be careful with withdrawing money from your retirement account; once you withdraw that money, you can no longer rely on it to continue to grow your retirement fund, so only do this if you need to.
As the end of the year approaches, be sure to examine your tax situation and check in with your accountant to see if there are any important tax moves you should make before this year ends. For more information about tax planning, reach out to a local service.