- It may not be too late to reduce your 2020 tax bill.
- Potential savings could be applied toward financial goals or additional investments.
- Here are several ideas to consider.
There may still be time to lower your 2020 tax bill. Below are several ideas to discuss with your Ameriprise financial advisor and tax professional.
Traditional IRA contribution
A contribution to a traditional IRA immediately reduces your taxable income, if you qualify.
- For a full deduction in the 2020 tax year, the 2020 adjusted gross income (AGI) thresholds are $65,000 single or $104,000 joint.
- If you/your spouse don’t have a retirement plan through an employer, there is no income limit to fund a traditional IRA.
- The contribution deadline is April 15, 2021, the IRS tax-filing deadline.
There are tradeoffs, depending on your financial goals and tax bracket. For example:
- The money in a traditional IRA is generally taxable when you withdraw it.
- Qualified withdrawals from a Roth IRA are tax-free.
- Individuals in upper tax brackets might benefit with an immediate tax deduction from a traditional IRA contribution, rather than a non-deductible Roth IRA contribution.
Health savings account (HSA) contribution
Your contributions to an HSA are deductible, even if you don’t itemize, and employer contributions are excluded from gross income.
Deductible contributions are due by April 15, 2021, and are limited to:
- $3,550 individual coverage
- $7,100 family coverage
- $1,000 catch-up contribution (if you are 55 or older)
The Tax Cuts and Jobs Act in 2017 temporarily increased the standard deduction amounts across all filing statuses through 2025. For the 2020 tax year the standard deduction for single taxpayers is $12,400 and $24,800 for married taxpayers filing jointly. As a result, fewer taxpayers itemize.
Depending on your circumstances, however, it might be worthwhile to review potential itemized deductions. If they add up to more than the standard deduction, you could benefit. Consider unreimbursed medical expenses; interest expenses for mortgages up to certain limits; home equity debt; charitable contributions; and state, local and property taxes. Check in with your tax professional and visit irs.gov for details.
A special note about deductions for charitable giving: CARES Act provisions will benefit many taxpayers.
- Non-itemizers can deduct up to $300 in cash donations that were made to qualifying charities before Dec. 31, 2020.
- For itemizers, the usual 60% of AGI limit for cash donations is waived for the 2020 tax year.
Smart tax decisions
Taking time to review your tax situation could result in savings to apply toward financial goals or investments. Speak with your Ameriprise advisor and tax professional to learn how you may be able to take advantage of these and consider other future smart tax strategies.