Tax planning

Top Tax Moves Before December 31, 2020 – But Don’t Wait Until the Last Minute

By Stephen J. Silverberg
New York Elder Law Attorney

There are a number of smart money moves to make before this historic year is over. Some of them were enacted as part of the economic relief package passed earlier in this year and others are traditional techniques, like charitable donations from an IRA. There’s still time to make these changes, but I’d encourage you to make them sooner rather than later. Even during a pandemic, the end of the year is a busy time. The sooner you get these moves started, the more choices you’ll have.

New standard deduction. The Corona Aid, Relief and Economic Security (CARES) Act passed earlier in 2020 carved out a new deduction of as much as $300 for donors who choose the standard deduction for 2020 tax year. Note this is only available for those who take the standard deduction, and not for anyone who itemizes. This deduction appears on tax returns for 2020 above the line for calculating AGI (Adjusted Gross Income). Your AGI can impact many other tax items, including how much of your Social Security benefits are subjected to tax.

There are exceptions, so be careful. This new break applies to “cash” donations, including only donations made with cash, checks or credit cards. Noncash items, like securities or in-kind donations, don’t qualify, and the charity must be a registered charity. The donation does not apply to donor-advised funds and carry-over contributions from prior years also don’t qualify. Make sure you get a receipt for your donation.

Suspension of charitable-deduction limits: A temporary suspension could impact donors if you itemize deductions and want to contribute a larger share of your income. In 2019, the total amount that you could deduct was limited to “no more than 60%” of your AGI,” although there would be further limits, depending on the asset you give and the organization you donate to. For 2020, that AGI-limit has been eliminated for cash donations.

RMD deductions waived for 2020: The CARES Act waved required RMDs for 2020, including beneficiaries of inherited IRA accounts.

IRA charitable transfers: You’ll need to be 70 ½ or older to use this technique, but those who qualify may transfer as much as $100,000 a year from an IRA directly to qualified charities and this “qualified charitable distribution” is nontaxable. This does count towards your RMD for the year, but it is not tax-deductible as a charitable contribution. Be sure to transfer directly to the charity.

Teachers and other educators are eligible for as much as $250 a year for what are deemed “unreimbursed trade or business expenses.” If both spouses are teachers, the maximum is $500 if both are eligible, but no more than $250 each.  If you’re a kindergarten through grade 12 instructor, teacher, counselor, principal or aide for at last 900 hours per school year in a school that provides elementary or secondary education as determined under state law, the IRS says you are eligible. This is also an “above the line” deduction that helps lower your AGI.

There are other money moves to be made before the end of 2020, including taking advantage of the lifetime gift tax exemption of $11.58 per individual or $23.16 million for married couples. The IRS has already stated that there will be no claw back for gifts in 2020, but that ends on December 31, 2020.

About the Author
Stephen J. Silverberg is nationally recognized as a leader in the areas of estate planning, estate administration, asset preservation planning, and elder law. He is a past president of the prestigious National Academy of Elder Law Attorneys (NAELA), and a founding member and past president of the New York State chapter of NAELA.