By Scott Bishop and Tom Mountain
It’s that time of year again—tax season is upon us. This is not the year to procrastinate! We know that the IRS is still poring over last year’s taxes in an effort to work through stimulus payments and the coronavirus relief measures will affect our taxes this year. It’s more important than ever to tackle this necessary evil head-on. If you want to avoid the stress and headaches that tax season brings, follow these three tips between now and April 15th.
1. Maximize Deductions and Credits
Benjamin Franklin may have declared that “nothing is certain except death and taxes,” but that doesn’t mean you can’t do your best to reduce your tax bill. Fortunately, there are various credits and deductions that will not only benefit you this tax season but also serve to give your financial future a boost.
Make Deductions Work For You
Maximizing your retirement savings is an optimal way to save on your taxes as well as increase your nest egg. If your employer offers a 401(k), you can contribute up to $19,500 in 2020. If you are over 50, you can also take advantage of catch-up contributions of an additional $6,500. If you don’t have the opportunity to save through an employer-sponsored plan, you can still invest in an IRA. IRA contribution limits for 2020 are $6,000 per person, with an additional $1,000 for those over 50.
Contributions to HSAs (health savings accounts) are also an excellent vehicle for reducing your total taxable income. The 2020 contribution limits for HSAs are $3,550 for an individual or $7,100 for a family. You can also make a $1,000 catch-up contribution if you are over 55. For the 2020 tax year, you have until April 15 to contribute to HSAs and retirement funds to benefit from this deduction.
Some additional deductions that may apply to you are state sales tax on major purchases, student loan interest, medical and dental expenses, and business write-offs.
Seek Out Applicable Credits
Filing taxes can be painful, but if you know where to look, you may be able to benefit from a variety of credits. Many Americans qualify for the Earned Income Tax Credit, and if you or your children attend post-secondary education, you could benefit from the American Opportunity Credit and the Lifetime Learning Credit. There are also credits for saving for retirement and child and dependent care. A qualified CPA will know what questions to ask and what to look for so you don’t miss out on any opportunities to minimize your tax bill.
2. Organize Your Paperwork
This is a crucial step to ensure a smooth filing experience. Gather records and account for all income, most commonly in the form of a W-2 or a 1099. Your employer is responsible for getting these documents to you by January 31, so you will have plenty of time to organize your paperwork before the filing deadline. Here are some additional documents you may need when filing your taxes this year:
- Records of charitable contributions over $250
- Information from prior years’ tax returns
- Rental income
- Mortgage interest and property taxes paid
- Dividend income
3. Consider Working With a CPA
Did you know that over 1 million accountants are hired each year in America to help with taxes? There’s a reason for that. Consider Working with a qualified and experienced accountant to aim to make your tax season experience as seamless and stress-free as possible. They have the knowledge to help you claim all the deductions you deserve, account for many variables unique to your situation, and answer any and all questions you may have. Their expertise can help reduce taxes and provide you with confidence.
Not only that, but a CPA can also provide suggestions that will help reduce your taxes for years to come, such as offering advice on tax-friendly ways to set up your estate and showing you the benefits of maximizing your retirement savings.
Tax day can feel ominous and stressful, but you can take control of this season. Between now and April 15, take these steps to get organized so you’re not scrambling at the last minute. If you have any questions about how we can help you work towards your financial goals or would like outside referrals to a CPA or tax professional, call 562-432-3783 or email [email protected] to schedule a free introductory meeting.
About Us
Mountain-Bishop Private Wealth Management is a full-service independent financial services and investment services firm that has been providing retirement and investment guidance to high-net-worth individuals, business owners, and Boeing employees for more than 25 years. Through our long-term guidance, we strive to help our clients build, protect, distribute, and transfer their wealth, tailoring our services and strategies to address each client’s unique needs so they can bridge the gap between their current financial situation and their long-term goals.
Scott and Tom built their practice on trust and excellence. They focus individually on each client, delivering the personalized touch that is missing with many other firms.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor
LPL Financial and Mountain-Bishop Private Wealth Management does not offer tax advice or tax preparation services.
You are under no obligation to use outside referrals that we have provided.
The Financial Consultants of Mountain-Bishop Private Wealth Management are registered representatives with, and securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.
The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with residents of the following states: (AK, AZ, CA, CO, FL, GA, ID, IL, MI, MO, NC, NJ, NM, NV, OR, PA, SC, UT, VA, WA) SCOTT E. BISHOP CA LICENSE OB55872 THOMAS P. MOUNTAIN CA LICENSE OB55827