By: Pamela Andrillon, JBS Corp.
We’ve given you time to familiarize yourself with the tax strategies and concepts. Last month we shared an article by NerdWallet, and now that we are in the home stretch of 2020, it’s time to put your newly-found knowledge to use for your tax plan. Keep in mind, if done correctly, tax planning can substantially reduce the amount you’ll owe on your tax bill while simultaneously eliminating financial stress for the new year.
To ensure all is fair and you’re taking the right steps, we’ve conjured up a list of the three most straightforward actions you can take before year-end:
1. Make the maximum contribution to retirement accounts.
Contributions made to your retirement accounts, like your 401(k), are tax-deductible. If you’re self-employed, don’t worry, you also qualify for this tax deduction by contributing to alternative retirement accounts such as Simplified Employee Pension (SEP), Traditional or Roth IRA, Solo 401(k), or a defined benefits plan.
For 2020, an individual’s maximum yearly contribution to their 401(k) is $19,500. For individuals over the age of 50, the amount increases to $26,000
2. Make the maximum contribution to HSA and FSA accounts.
Like the retirement accounts, contributions made to your Health Savings Account (HAS) and Flexible Spending Account (FSA) can be written off on your taxes. Unfortunately, these accounts are offered by employers, and self-employed individuals are only eligible for HSAs. An HSA can cover medical expenses not typically covered by insurance, and an FSA can assist with childcare costs.
3. Sit down with your accountants, tax advisors, and financial advisors.
Before 2020 comes to an end, if self-employed, contact your accountant and schedule an appointment with them to review your finances for the year and analyze your Profit and Loss statement. This simple step can provide you with a clear picture of what changes, if any, you’ll have to make to be financially successful in 2021.
