Whether it was part of your New Year’s resolutions, or you just want to avoid paying too much in taxes this year, there are ways to save on your income tax for 2020. Not only is it good practice to implement these ideas right away (so you are not scrambling just before filing next year), but you can integrate your tax saving plan into your long-term care planning as well.
First: Know the Big Changes Ahead for the 2020 Tax Year
There are a few big changes coming when you file your 2020 taxes, but you need to be aware of these now to take full advantage.
- The standard deduction rate is increasing for singles and married couples. If you are single, you have a new standard deduction of $12,400. Married couples filing jointly on their tax returns will get $24,800. These standard deductions alone may eliminate the need for more complex deductions. That is an extra $200 for singles and an extra $400 for married couples filing jointly. Those filing head of household will get a $18,650 deduction, which is a $300 increase.
- You can put away extra in your retirement plan this year. For 2020, you can stash up to $19,500 in your retirement plan (as long as it is a 401(k)), and you can do an extra $6,500 if you are 50 and over.
- Know the tax bracket changes. While you do have more deductions, there are seven brackets that range from 10 to 37 percent of someone’s adjusted gross income, and the tax brackets are adjusted this year.
Consider the Big Tax Credits for 2020
You should always be on the lookout for tax credits, because these can help lower your tax burden significantly. A tax credit will reduce your taxes more than a deduction, which is why you should look at these and prioritize them over deduction opportunities.
The earned income tax credit still applies in 2020, and it usually helps those with low to medium incomes.
One big credit is the child tax credit. This year, you get $2,000 per eligible child. To get these credits, you have income limitations. Singles cannot use the child tax credit if they make over $200,000 gross per year, while married couples cannot exceed $400,000 gross per year.
Don’t Rule out Tax Deductions for 2020
Tax deductions are still valuable, and you should always strike a balance between credits and deductions to lessen your tax burden for the year. Some deductions to utilize as much as possible include:
- Your mortgage interests. If you are currently paying a monthly mortgage payment, then you are also paying interest on that loan. You can deduct up to $750,000 in real estate debt that accrues interest. You can also deduct the interest on your home equity loans, especially those used to purchase or improve a home.
- Donations to charities and organizations. Any donations you make in cash or check to qualified charities are deductible. You will want a receipt from that organization showing that they are legitimate and the amount you contributed for 2020.
- Property tax on your home. When you pay your annual property tax, you can deduct up to $10,000 for that tax to the local government.
- Child Care If you pay for childcare, you can deduct that from your income tax. Just make sure you get a full record of child care payments made.
Other Tips for Surviving 2020’s Tax Year
Now is the perfect time to get yourself organized and make sure that when April 2021 shows up, you are ready to file without any headaches or holdups.
You can start by implementing just a few steps:
- Start Organizing Now – Do not wait for your New Year’s resolutions in January 2021 to start organizing your finances. Now is the time to make a folder (digital or otherwise) for all of your receipts for tax credits and deductions you plan to use when you file next year.
- Keep an Eye on Investments – Keep track of how much you have invested, and where you invest when it comes to stocks and funds. Also, if you sell any, track the amount you earned compared to what you paid – you will owe taxes on the earnings.
- Save for any Unexpected Taxes – You should make sure to have ample savings for any tax bills that you know you will pay – such as self-employment quarterly taxes.
Consider Setting up a Trust to Protect Your Loved Ones and Estate
Now is the ideal time to meet with an attorney about your estate plan, too. You do not want your family to deal with the burden of estate tax or probate. While you are planning out these tax tips for 2020, meet with an estate planning attorney to see if your estate could benefit from a trust. With a trust, you put all of your assets into the trust so that you no longer own them. With the trust in control, if you were to pass away, you can easily send those assets over to beneficiaries – all without them paying for the hassles of probate.
Considering Long-Term Care? Start Medicaid Planning Now, Too
While you are working on taxes for 2020, do not forget about Medicaid planning. Medicaid is a federal and state program that pays for your healthcare when you retire. Even if you are ages away from that, now is the time to make sure you are managing your finances so that, when you do need Medicaid, you are not disqualified for owning too many assets.
Tax returns are considered when you apply for Medicaid, so speak with an attorney about your options.
If you are curious about how you can plan for long-term care, take care of your loved ones, and still keep your finances in order, meet with attorney, Andrew M. Lamkin P.C., today. We can help you find a good balance between protecting your estate with a trust and protecting yourself from long-term care limitations. Schedule a free consultation by calling directly or requesting more information online.
Andrew Lamkin is principal in the law firm of Andrew M. Lamkin, P.C., where he focuses his practice in the areas of elder law, estate planning and special needs planning, including Wills and Trusts, Medicaid planning, estate administration and residential real estate transactions. He is admitted to practice law in New York and New Jersey.
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