If you want to pay less money to the government, then I am here to help you. I am a Certified Public Accountant and owner of multiple tax practices. Let’s go over things you can do now, before the year ends, so that you end up paying less taxes to the government.
Here is an overview of the 9 Tax Hacks:
- If you’re self-employed, the government is paying you up to $5,110 to take 10 sick days in 2020.
- If you’re single and make under $32K or married and make under $65K, then there’s a special tax break called the Savers Credit.
- If you make under $52K a year, then you can sell some stocks and avoid taxes on the profit.
- Giving to charity now counts as a tax write-off for everyone this year.
- If you’ve received unemployment benefits this year, make sure you’re not going to get charged a penalty.
- Get a tax deduction for putting money into an account for your children before the year ends.
- Sell your losing stocks and cryptos for a tax write-off.
- Rent out your home to your own business for 14 days and get a huge tax write-off.
- Don’t forget any tax write-offs before the year ends.
1. Claim Your Sick Days
If you are self-employed, a sole-proprietor, or an S-Corporation, then this tax hack applies to you. Make sure you claim your sick days on yourself. The government is paying you up to $5,110 to take 10 sick days before the year ends.
Additionally, if you have a child and their school is closed for in-person learning, you can claim up to an extra $10,000 of family paid leave.
Depending on your entity or how you are structured, you may need to take action before the year ends; otherwise, you’ll miss out on this benefit and won’t be able to claim it.
If your accountant didn’t tell you this, shame on them.
If you don’t have an accountant, you should think about getting one.
2. Saver’s Credit
If you are single and make under $32,500 or if you’re single making under $48,750 with a dependent, or if you’re married with combined income less than $65,000, then there’s a special tax break called the Saver’s Credit.
Studies show that less than 10% of Americans know about the Saver’s Credit, so I’m happy to keep you informed.
If you put money into a retirement account, not only can you get a tax deduction, but you’ll receive an additional tax credit of up to $1,000 if you’re single or $2,000 if you’re married.
You can do this with a 401K, 457, 403(b), or an IRA.
If you’re putting away any spare money into Robinhood or M-1 or WeBull, you might be better off utilizing this in order to reap all the tax benefits.
3. Sell Some of Your Stocks
If you are single and you make under $52,400 or if you are married and your combined income is less than $104,800, then this will apply to you.
If you are in the stock market and you hold a stock for more than a year and you sell it for a profit, then you will pay $0 dollars in federal income taxes if you’re in that income range. This is called the 0% long-term capital gains rate.
Therefore, if you think your income will be going up next year, above those income thresholds, you may want to consider selling your winning stocks in order to lock in those gains this year, tax-free.
4. Charitable Donations
There was a rule change for making donations in 2020. Before, you could only deduct charitable donations if you were itemizing your deductions, in other words, making donations only provided a benefit to certain people.
In 2020, the charitable donation deduction is now available and applicable to everyone.
Therefore, if you’re donating to charity in 2020, please be sure to keep the receipt.
5. Unemployment Benefits
If you’ve received unemployment benefits this year, use a tax tool estimator to see if they took out enough in taxes from your unemployment compensation.
If not, you’re going to have a surprise tax bill and you could be charged penalties and interest. Here’s an article we wrote that goes over this topic.
A penny saved is a penny earned, so please make sure that enough taxes were taken out of your unemployment compensation.
6. 529 Plan Contributions
If you have children, you have until December 31st to put money into a 529 plan for your children’s education plan, which will provide you a tax deduction in your state in most income-tax paying states.
The benefit of 529 plans are:
- you receive a tax deduction for putting money into the plan
- the earnings in the plan will grow tax-free
- and all the earnings will be tax-free if the funds are used for qualifying education expenses
Please keep in mind that some states don’t charge their residents income taxes, so the tax deduction in this scenario is a moot point. However, you would still get the benefit of tax-free growth and earnings which would compound significantly, especially if you start the plan for your child very early.
7. Stock Loss Harvesting
If you lost some money in stocks or cryptos but haven’t sold out of the position yet, then you can sell the stock or crypto for a loss and then claim the tax deduction to reduce your taxes.
This is called stock loss harvesting.
Ultimately, you sell-off your losing positions and lock in your loss. With a loss, you can write it off and pay less in taxes.
8. Rent Out Your Home
If you are a sole proprietor or a business owner, you can rent out your home to your own business for 14 days or less.
This is called the Minimal Rental Use rule with the IRS and this is completely separate and different from the home office deduction.
By utilizing the Minimal Rental Use Rule, you’ll get a deduction for your business and it will be tax-free income to you personally.
9. Claim Your Business Expenses
If you are a single member LLC, sole proprietor, or S-Corp, claim your tax write offs now before the year ends.
Front load your expenses and accelerate your deductions.
What I mean by this is that if you’re expecting any expenses in January or February, you might as well pay those in December so that you can use it as a write-off in 2020 instead of waiting for that benefit 12 months from now.
I’m basically telling you to prepay any expenses that you can if your cash-flow allows for it.
This could be things like rent, utilities, buying a laptop, electronics, supplies, and so much more.
As long as the payment is initiated by December 31st or if it is mailed out by December 31st, then it will count as a deduction for 2020.
If you know someone that is self-employed or in the stock market or in cryptos or could use some of this tax advice to help them save money, please be sure you share this link with them and they will most likely thank you.
I don’t want to see you paying the government more money in taxes than you should.