Tax-saving tips brought to you by Briggs & Veselka Co.
HEALTH & RETIREMENT CONTRIBUTIONS:
Health Savings Account (HSA) Contributions
Individuals who are covered by a qualifying high deductible health plan may make deductible contributions to an HSA, subject to certain limits. For calendar year 2020, assuming a full year of coverage, the maximum contribution is $3,550 for self-only coverage and $7,100 for family coverage ($3,600 and $7,200 for 2021), plus an additional $1,000 for those age 55 or older. Distributions from an HSA to pay qualified medical expenses are not taxable. Distributions used for nonmedical purposes are taxable, and if made before age 65, are subject to a 10% penalty tax.
IRA Contributions for 2020
IRA contributions may be made on or before the original due date of the return. If otherwise eligible, those contributions may still be deducted on the 2020 return. ROTH IRA contributions have the same due date. No deduction is allowed but the growth can eventually be withdrawn tax-free as long as requirements are met.
- Created a $300 partial above-the-line charitable contribution for individuals taking the standard deduction and expands the limit on charitable contributions for itemizers
- Waived the 10% early-withdrawal penalty on retirement account distributions for individuals facing virus-related challenges.
- Allows businesses or individuals with business losses resulting in Net Operating Losses a five-year carryback of net operating losses (NOLs) earned in 2018, 2019, or 2020. The NOL limit of 80% percent of taxable income is also suspended, so businesses may use NOLs they have to fully offset their taxable income in carryover years.
Recovery Rebate Credit 2020
For 2020, eligible individuals are allowed a refundable income tax credit of $1,200 ($2,400 for joint filers) plus $500 for each qualifying child under age 17. The credit is reduced by 5% of the amount by which the taxpayer’s 2020 adjusted gross income exceeds $75,000 ($150,000 for joint filers; $112,500 for heads of household), but not below zero. The IRS automatically made advance payments (Economic Impact Payments or EIPs) of the recovery rebate credit to most eligible individuals during 2020. This includes individuals who filed a tax return in 2018 or 2019 and individuals receiving government benefits such as Social Security Income, Social Security Disability Income, Veterans Compensation and Pension and Railroad Retirement. Eligible individuals who were not in one of the automatic payment categories or did not receive as much as they may be eligible for should compute this credit on their 2020 return.
Taxpayers should have received Notice 1444, Your Economic Impact Payment, within a few weeks after the IRS makes the EIP. Taxpayers should keep the notice for use in filing 2020 tax returns as the amount received will reduce the amount of credit computed for 2020.
First-year depreciation deduction. Most used as well as new machinery and equipment bought and placed in service in 2020 qualifies for a 100% bonus first-year depreciation deduction.
Qualified business income deduction
A deduction of up to 20% of their qualified business income for all businesses other than C Corporations. The deduction is subject to multiple limits based on the type of trade or business, the taxpayer’s taxable income, the amount of W-2 wages paid with respect to the qualified trade or business, and/or the unadjusted basis of qualified property held by the trade or business.