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Twelve end-of-year tax tips: How COVID-19 could lower your tax bite


 

5. Charitable donations for 2020

There is no shortage of people in need owing to the pandemic. For those who continue to be charitable-minded, a decrease in income may mean you have more opportunity for your regularly recurring charitable donations to decrease your taxes this year. Normally, charitable donations for itemizers are limited to 60% of AGI. However, the CARES Act increased the charitable deduction limit to 100% of AGI for 2020. Even those who claim the standard deduction can take advantage of a new “above-the-line” deduction worth $300 for individuals and $600 for joint filers by making qualified cash donations in 2020. Take special note that the contributions do not apply to donor-advised funds or nonoperating private foundations.

6. Noncash charitable donations

Many physicians are working longer and harder than ever, and for many, that means vacation plans have been placed on hold for the remainder of the year. Don’t let your paid-time-off days go to waste! The IRS now permits leave-based donation programs, which allow employers to make deductible charitable donations for the relief of victims of the COVID-19 pandemic on the basis of the value of the sick, vacation, or personal leave that employees voluntarily forgo. The value of the donation will not be treated as compensation for the employee and will be free of any otherwise applicable Federal Insurance Contributions Act (FICA) taxes, and the employer can deduct the donation as ordinary and necessary business expenses if they meet certain requirements.

7. Claiming 2020 losses on prior tax returns

For self-employed physicians, a wealth of tax planning strategies are available. One of the most significant may be the new provisions under the CARES Act that allow 100% of net operating losses (NOLs) for 3 calendar years of losses – namely 2018, 2019, and 2020 – to be carried back to the prior 5 tax years. Using these NOLs, you may be able to claim a refund for tax returns from prior tax years when there was otherwise a limit on NOLs at 80% of taxable income. If you think this applies to you, it’s wise to meet with your accountant or financial professional to discuss this.

8. Delay payroll taxes where possible

For physicians with employees looking for some cash flow relief, a new payroll tax deferral is available to you this year. Under the CARES Act, employers can delay payment of their 2020 employer payroll tax, namely the 6.2% Social Security tax, with 50% not due until Dec. 31, 2021, and the remainder due Dec. 31, 2022. The deferral will not incur any interest or penalties and is also available to those who are self-employed.

On top of that, a new payroll tax credit was created under the Families First Coronavirus Response Act. Eligible employers can receive this tax credit for the amount of wages they pay to eligible employees who are taking pandemic-related paid family leave or paid sick leave this year. The credit is also available to those who are self-employed. If you think this credit may be applicable to you, it’s worth speaking with your tax preparer about it.

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