Financial moves to make before 2020
As we approach the end of the year, this is a good time to consider a few good money moves that will make a difference in your finances.
1. Check Your Tax Withholdings
Take a few moments and utilize a tax calculator to estimate your expected taxes for the year. With the changes to the tax code, individuals may be in for a surprise. The Internal Revenue Service (IRS) has a withholding calculator that can quickly estimate your expected tax liability. Using information from your last paycheck, projected profits from self-employment and rental activities, current deductions and much more, you can get a good idea of what you may owe or what you can expect to receive.
2. Create a giving strategy
If you want to reduce your tax liability for this year, consider giving to a qualified charity. Keep in mind, if you are uncertain about whether a charity is tax-exempt, visit the IRS website to check its status.
In order to take advantage of the tax donation – you must itemize your deductions – which means you must have more deductions than the standard deduction. For single individuals, the standard deduction is $12,000, head of household $18,000 and $24,000 for married filing joint taxpayers.
If you do not have enough to itemize consider bunching your deductions. For instance, if you were to give $7,000 annually, consider doubling up every other year to have enough to itemize.
3. Required minimum distributions
If you are 70 1/2 or older, the IRS requires you to take a minimum distribution if you have a 401k plan or IRA. The amount of the distribution can be determined by visiting the IRS website or speaking with your financial professional. Failure to do so can cause hefty penalties - 50% of the required minimum distribution amount. Keep in mind, the distribution must be done prior to December 31.
4. Consider contributing to a 529 plan
You have until December 31 to take advantage of contributing to a 529 plan. A 529 plan allows individuals to save or invest money for education expenses. This plan can be set up for dependents, loved ones or for personal reasons to pay for education (K through 12 private education and/or college). Know that the plan allows for contributions to grow tax-free and provides a state tax deduction. Here in the State of Louisiana, contributions are matched up to a certain percentage, thus providing free money toward education expenses.
If you are a business owner, you may want to consider reviewing your tax entity. Selecting the right entity for your business can help you save thousands at tax time. Check out my post at Kemcents.com
to determine what is the best entity for you!