Did anyone else feel like this tax season was never-ending? Now that October 15th has come and gone, it is time to shift gears over to 2020 taxes. For many tax professionals, November and December is the time to sit down (likely virtually this year) with clients. It is a great time to see how the year is going and to accomplish some tax planning. Obviously, 2020 has likely thrown most people a bit of a curve ball when it comes to your income for the year.
Some businesses really took a financial hit while others flourished. Either way it is a good idea for a check in. For those that are on the flourishing side, your income may be higher than it ever has been. This is great but unfortunately, making money means paying more in taxes. However, perhaps there are some strategic moves that can be made to lessen the blow. For example, you can take advantage of putting away more money into a retirement plan while also getting a deduction. For those that are in a businesses that has not been so fortunate, you may be able to take advantage of any losses you have generated and do a Net Operating Loss Carryback. It is a good idea to consult your tax advisor to see if there are any options out there for you that make sense for both tax purposes and business purposes.
Even for those that usually just have a W2 and perhaps this year, have unemployment, it is a good idea to see if you had enough withholding to cover your tax liability to avoid any potential penalties. Fun fact – unemployment is taxable! I think there are a lot of people out there that do not know this and will be very surprised when they go to file their tax return. If you are still on unemployment, consider having taxes withheld from your benefits if you are not already. If you are no longer on unemployment and did not have any withholding, check in to see if you need to pay anything in or perhaps bump up your withholding on your current employment earnings. The IRS’ Tax Withholding Estimator Tool on their website is a great way to check in on your income levels and withholdings.
Whatever your situation may be, I think we can all agree that 2020 has been a bit different to say the least. All the more reason to consult with your tax advisor to see how your 2020 tax return may change.
Kelsey L. Phillips, CPA