6 End-of-Year Tax Tips for 2020

By Mitchell J. Smilowitz, CPA

As this challenging year ends, it is especially important to monitor your taxes. Not only are changes from the 2017 Tax Cuts and Jobs Act (TCJA) still being implemented, but tax legislation passed this year to ameliorate the impact of COVID-19 added new tax options and opportunities. This article reviews some of these provisions – and how you can take advantage of them.

First, remember that the TCJA greatly increased the standard deduction. In 2020, the standard deduction is $12,400 for single taxpayers, $24,800 for married couples filing jointly and $18,650 for single heads of household. Each taxpayer over age 65 or blind can take an additional $1,300 standard deduction. For those who are both over age 65 and blind, the additional deduction is doubled to $2,600. The expanded standard deduction makes it much less likely that many taxpayers will find it beneficial to itemize.

1. Maximize Your JRB Retirement Plan Contribution

You can contribute up to $57,000 ($63,500 for those over age 55) to your JRB retirement account in 2020. Every dollar you contribute reduces your taxable income.

  • If you earn $50,000 and contribute $5,000 to your JRB account, your taxable income is reduced to $45,000. If you are married and filing jointly and you are in the 12% tax bracket, you can expect to save $600 in taxes ($5,000 x 0.12).
  • If you earn $100,000 and contribute $10,000 to your JRB account, your taxable income is reduced to $90,000. If you are married and filing jointly and you are in the 22% tax bracket, you can expect to save $2,200 in taxes ($10,000 x 0.22).

In addition to these immediate savings, contributing to your JRB account offers other advantages. Your earnings grow tax free in the plan; you only pay taxes when you withdraw the money in retirement at which time you’ll probably be in a lower tax bracket.

Clergy Retirement Home Run

  • Contributions lower taxable income
  • Contributions lower income for Social Security self-employment tax (SECA)
  • Earnings accumulate tax free in the plan
  • Tax-free withdrawals in retirement for parsonage allowance

2. CARES Act Stimulus Checks Are Not Taxable Income

The IRS sent out more than 140 million stimulus payments in 2020 as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act. These payments are not considered income and you do not owe taxes on these funds.

3. Didn’t Receive the CARES Act Stimulus Payment? You May Still Be Eligible

The CARES Act stimulus payment is considered a refundable tax credit against your 2020 taxable income. To get the money out quickly, the Treasury Department based the payments on your 2018 or 2019 tax returns. If you did not receive the (full) stimulus payment, but you are eligible for it based on your 2020 income, you may still be entitled to a tax credit. Check with your tax advisor.

4. $300 Charitable Deduction for Those Who Don’t Itemize

The CARES Act created a deduction for charitable donations from taxpayers who don’t itemize. This means single taxpayers can give up to $300 to charities of their choice ($600 for married couples filing jointly) and reduce their taxable income by the amount donated. To take advantage of this provision, taxpayers must make their donations before the end of the year.

5. Child and Dependent Care Credit

This non-refundable tax credit is available to taxpayers who pay out-of-pocket expenses for child care (the child must be under age 13) or a disabled dependent while the taxpayer works or looks for work. Deductible expenses include babysitters, day camps and before- and after-school programs. Expenses paid with pre-tax dollars, such as a flexible spending account, are not eligible for the deduction.

You are allowed to claim between 20% and 35% of total child care and dependent care expenses depending on your income. The maximum credit is $3,000 for one qualifying dependent; $6,000 for two or more.

6. Lifetime Learning Credit

The Lifetime Learning tax credit allows parents and students to lower their tax liability up to $2,000 to offset higher education expenses. The credit covers up to 20% of the first $10,000 of qualified education expenses – a maximum of $2,000 per tax return. There is no limit on the number of years you can claim the credit, but there are income limits above which the credit is phased out.

Eligible educational institutions include any post-high school institution that participates in a student aid program run by the U.S. Department of Education. The student must be enrolled for at least one academic period in the tax year in which the credit is being claimed.

Taking advantage of these six tips can reduce the taxes you owe. This article introduces you to these opportunities, but the JRB urges you to check with your tax advisor to determine if you are eligible for them and/or what you need to do before the end of the year. We are also available to answer your questions. Please contact us at 888-JRB-FREE (572-3733) or send us an email.


November 2020