Page 30 - BusinessWest November 23, 2020

consult with your professional tax advisor about the details.
INDIVIDUAL TAX PLANNING Charitable Donations
Generally, itemizers can deduct amounts donat- ed to qualified charitable organizations, as long as substantiation requirements are met. Be aware that the TCJA increased the annual deduction limit on monetary contributions from 50% of adjusted gross income (AGI) to 60% for 2018 through 2025. Even better, the CARES Act raises the threshold to 100% for 2020.
• In addition, the CARES Act authorizes an above- the-line deduction of up to $300 for monetary con- tributions made by a non-itemizer in 2020 ($600 for a married couple).
• In most cases, you should try to ‘bunch’ chari- table donations in the year they will do you the most tax good. For instance, if you will be itemiz- ing in 2020, boost your gift giving at the end of the year. Conversely, if you expect to claim the standard deduction this year, you may decide to postpone contributions to 2021.
• For donations of appreciated property that you have owned longer than one year, you can generally deduct an amount equal to the property’s fair market value (FMV). Otherwise, the deduction is typically limited to your initial cost. Also, other special rules may apply to gifts of property. Notably, the annual deduction for property donations generally cannot exceed 30% of AGI.
• If you donate to a charity by credit card in December — for example, if you make an online con- tribution — you can still write off the donation on your 2020 return, even if you do not actually pay the credit-card charge until January.
Family Income Splitting
The time-tested technique of family income split- ting still works. Currently, the top ordinary income- tax rate is 37%, while the rate for taxpayers in the lowest income tax bracket is only 10%. Thus, the tax rate differential between you and a low-taxed family member, such as a child or grandchild, could be as much as 27% — not even counting the 3.8%
per-family basis. Thus, the AOTC is usually prefer- able. Both credits are phased out based on modified adjusted gross income (MAGI).
• Alternatively, you may claim the tuition-and-fees deduction, which is either $4,000 or $2,000 before it is phased out based on MAGI. The tuition-and-fees deduction, which has expired and been revived sev- eral times, is scheduled to end after 2020, but could be reinstated again by Congress.
net investment-income tax (more on this later). • Shift income-producing property, such as securities, to family members in low tax brack-
ets through direct gifts or trusts. This will lower the overall family tax bill. But remember that you are giving up control over those assets.
In other words, you no longer have any legal claim to the property.
“
businesses are struggling to stay afloat, resulting in large numbers of outstanding
”
• When appropriate, pay qualified expenses for next semester by the end of this year. Generally, the costs will be eligible for a credit or deduction in 2020, even if the semester does not begin until 2021.
Medical and Dental Expenses
Previously, taxpayers could only deduct unreim- bursed medical and dental expenses above 10% of their AGI. When it is possible, accelerate non-emer- gency qualifying expenses into this year to benefit from the lower threshold. For instance, if you expect to itemize deductions and have already surpassed the 7.5%-of-AGI threshold this year, or you expect to clear it soon, accelerate elective expenses into 2020. Of course, the 7.5%-of-AGI threshold may be extend- ed again, but
• Also, be aware of potential complications
caused by the ‘kiddie tax.’ Generally, unearned income above $2,200 received in 2020 by a child younger than age 19, or a child who is a full-time student younger than age 24, is taxed at the top mar- ginal tax rate of the child’s parents. (Recent legislation reverses a TCJA change on the tax treatment.) The kiddie tax could affect family income-splitting strate- gies at the end of the year.
Higher-education Expenses
The tax law provides tax breaks to parents of chil- dren in college, subject to certain limits. This often includes a choice between one of two higher-educa- tion credits and a tuition-and-fees deduction.
• Typically, you can claim either the American Opportunity Tax Credit (AOTC) or the Lifetime Learn- ing Credit (LLC). The maximum AOTC of $2,500 is available for qualified expenses of each student, while the maximum $2,000 LLC is claimed on a
you should maximize the
Tax Planning
Continued on page 33
During this turbulent year, many small
receivables and collectibles.
Nicholas
LaPier
CPA, PC
Certified Public Accountants and Business Consultants
Tel: 413.732.0200 Fax: 413.732.2205
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