Regardless if you have filed your 2019 federal income tax return, or are still waiting on tax documents, tax planning for 2020 has already begun. Although we are currently in an uncertain economy, we cannot forget the importance of evaluating our personal finances. As we approach the 1st and 2nd quarter estimated tax payment deadline, here are a few items to consider. (As a reminder, your 1st and 2nd quarter estimated tax payments were extended and are both due on July 15, 2020.)
Investments
One important midyear to-do item is to review your investments. The COVID-19 pandemic has directly impacted the financial markets and many of your investments. As of now, many are looking at recognizing a capital loss on investments sold, for 2020. However, only $3,000 of losses are deductible in the current year for each individual. Any excess losses will be carried forward into future tax years. Remember to keep a close watch on your investments towards the end of the year, especially any investment that could generate a capital gain. Capital losses can be offset by capital gains and can also be strategically used to lower your individual income tax liability.
Small Business Owners
With COVID-19, many business owners have closed or halted operations for the past few months. Some businesses that have re-opened may have received funding through the Paycheck Protection Program or other government funding, but are now operating at a loss. Projecting and annualizing your business income/loss will affect your upcoming quarterly estimated tax payments. Are you expecting a net operating loss for the 2020 tax year? The COVID-19 crisis alleviated certain rules regarding net operating losses and you could be eligible to carry those losses back and offset income from previous years.
W-2 Employees
Have you checked your federal income withholding? As you review your overall 2020 income sources, you may need to adjust your withholding to ensure you are paying in the appropriate amount of taxes. Take the time to consider any major life changes, future income, filing status, and deductions. To adjust withholding, reach out to your Human Resources Department to update Form W-4. Be sure to utilize the IRS' online Tax Withholding Estimator tool.
Re-evaluating your 2020 tax year could directly impact your estimated cash flow for the upcoming quarterly estimated tax payments. There are many other potential tax impacts (retirement planning, deduction strategies, further business tax planning, etc.) to consider before we enter the latter half of 2020. ADKF can help you with your tax planning. Please call us at 210-829-1300.