5 Essential Areas Where You Can Save on Taxes Before Year’s End

Important points

• If you own a business or started a side gig, take advantage of “necessary and ordinary” deductible expenses.
• Roth IRAs grows tax-free since it’s after tax dollars are in this account.
• The IRS has a new W4 app that can estimate your withholding taxes. This can help you with tax savings and maybe have more money every paycheck.

1. Charitable contributions
2. Roth IRA contributions
3. Business deduction if you have a side hustle
4. Health savings account
5. Update your withholding taxes

With just a month left to take advantage of tax savings for the unusual year 2020, which means there’s no time to waste for tax-planning strategies.

The CARES Act, which congress enacted to help with the COVID downturn has some tactical advantage for 2020. This may apply to your particular situation.

Here are basic list that you can do in a day then your set before the New Year comes to save on taxes.

Charitable organization

Because of the CARES Act, donors are incentivized to give more for 2020.

Individuals that take itemized deductions on their taxes can deduct up to 100% of their AGI for cash donations to qualified public charities.

This special consideration only for 2020, In typical years, you can claim up  to 60% of your AGI for charitable donations.

Roth IRA contributions

Roth IRA’s is designed for savers and lets you earn tax-free retirement income.

Though it does not give you a tax break in the year you make the contribution, since contributions are made with after-tax dollars.

But your withdrawals after ages 59 ½ are tax-free. It’s paying your taxes now and not paying taxes on withdrawal.

Because of COVID-19 downturn, you may have lost some income in the recent months.  Converting your traditional IRA accounts to a Roth IRA may have some advantages. You may pay some income taxes on the sums converted but since the household income is down and the values are low, fees might be minimized as well.

Business deductions with your side hustle

If you started a side gig because of the COVID-19 downturn or you have been in a side-gig environment, you need to reduce your taxable income and save on taxes to pay.

Review the IRS’ “necessary and ordinary” deductible business expenses.

Take particular attention to home-office deduction, mileage write-offs, materials and office equipment that you use and bought for your business.  

It can be helpful, if you have a separate account for your business and personal spending.

Tightly keep track of business expenses and income. Keeping a simple spreadsheet can make your tax preparation little less stressful and maybe keep more of what you earn in the future.

Health savings account

Funds in a HSA accounts can pay for qualified medical expenses and avoid tax withdrawal.  Plus cash saved in these accounts are not mandatory to be spent at the end of the year. You can even tap these funds in your retirement.

Update your withholding taxes

Updating your withholding taxes can give extra money every paycheck especially if you have a side gig.

Now if you have insufficient taxes being withheld every paycheck you may owe taxes.

If you are receiving large refunds every year that means you’re claiming fewer allowances than you should be. Most of the time the more allowances you claim, the less tax will be taken from each paycheck.

Get in touch with your HR department and adjust your withholding taxes. For 2020 W4 form, depending on your eligibility, you can claim between 0 to 3 allowances.

The IRS has a new app that can help you figure out the right amount of taxes withheld every pay check.