Year End is Coming - Are You Ready?
Author: Tamara L. Doss
The Job Shop Finance Manager
Several things come to mind when I think of the arrival of the end of a year. There is all the fun stuff like Holidays, great meals and friendly gatherings, time to reflect on the joys and sorrows of this crazy year along with the dreams that the best is yet to come. Then there are the necessary things we all must do as well.
Although no one likes to talk about it the time is nearing where you will need to look at where you stand on preparation for your 2020 income taxes. There are several things that can be done in advance to help avoid over paying your taxes. These include a variety of easy reviews that can be done very quickly.
First of all, it is best NOT to think of the government as your savings account if you may be eligible for a tax refund. You are better at managing your money than they are! The whole idea is to pay in as close as possible to the amount that you owe. Nothing more and definitely nothing less.
The real considerations should be how can I follow the law and take advantage of the tax deductions for which I am eligible?
Some deductions are obvious and others are a bit more obscure. Depending on the complexity of your tax returns you will want to discuss this with a professional tax preparer. By doing this now you may be able to avoid over or under paying your income taxes.
Things that you might want to consider to reduce your taxable income are contributions to your 401K, IRA or Health Savings Account. With about 2 months until the end of the year you still have time to put in a contribution to any of these pre-tax accounts if your employer offers them.
It is also a good time to check your income tax withholding deductions and possibly take the added step to complete a new Internal Revenue Department W-4 Form and State of California DE-4 Form. If you were married or divorced you will want to change your tax deductions. If you have had a child or adopted one you may want to increase your deductions. There are many reasons to consider updating your tax deduction forms. Everyone’s circumstances are different.
This year you may have received unemployment compensation from both the Federal government and the State government. Unemployment compensation is taxable. Taxes on this money may not be due in 2020 but knowing your tax burden going into 2021 will be more important than ever.
Taking a few minutes to review your tax situation can really save you money. Making small adjustments now and after the first of the year can make completing your tax returns tolerable. These are just a few examples. Taking time to review your tax situation now will be to your benefit.
Enjoying the remainder of 2020 and looking to a brighter 2021 is a goal we all share. Not having a tax burden can be a great start for a spectacular 2021.