With Christmas imminent I’m sure you’ve already made a list of people you want to tip this year. You usually give a tip to your hairdresser, postal delivery man or woman, babysitter or mechanic. But allow me play Grinch for a moment. Since we’ve been living through a global pandemic, high unemployment, and millions of people facing food insecurity, should we be tipping in 2020?
What’s fascinating about the whole tipping conversation is that we’re supposed to tip the people who have rendered valuable personal services to us throughout the year. If that’s the case, how is it that there is a suggested list of people who provide critical and valuable services that are intentionally omitted from the tipping list? According to holiday tipping etiquette, you should not tip your doctor! You mean the person who has helped keep you alive all year should not be tipped? Another person on the do not tip list is your attorney – the person who gave you advice all year and kept you out of trouble. Well, regardless of your tipping philosophy or who’s on your list here are some financial tips you need to need to consider before 2020 comes to an end.
Charitable Contributions/ Donations
If you made charitable contributions in 2020, you will be allowed an “above the line“ deduction of up to three hundred dollars even if you do not itemize and claim the standard deduction. This is good news and a break for most people who use the standard deduction. In prior years, if you only qualified for the standard deduction and made charitable contributions your contributions did not aid in increasing your refund or reducing the tax liability. Therefore, if you have made charitable contributions of at least three hundred dollars by December 31, 2020 be sure to apply the standard deduction on your 2020 taxes.
What if you itemize? If you usually itemize on your taxes a greater percentage of your contributions made in 2020 will be allowed. What do I mean? In the past, your charitable contributions were limited to only 60% of your adjusted gross income (AGI). However, if you provide charitable contributions by December 31, 2020 and itemize 100%, yes 100%, of your charitable contributions will count and not be limited by your adjusted gross income.
Finally, if you don’t have cash what is the best asset to donate? If you have long term appreciated securities to donate the benefits are difficult to ignore. The way it works is you donate the asset to the charity and deduct the full fair market value up to 30% of your adjusted gross income. The organization receiving the appreciated securities generally will not incur capital gains taxes upon sale of the asset. It’s a win, win for everyone!
Get Cash without Penalty
In the past, if you needed money and wanted to withdraw money from your retirement, 401k or 403(b) and were younger than 59 1/2, you would face the consequences of a 10% penalty for early withdrawal. This year, if you are struggling through the pandemic and need some cash you can avoid payday loans and withdraw from your retirement account without tax penalties. If you need the money, you have until December 31, 2020 to execute the transaction.
Match Your Retirement
Each year millions of employees leave money on the table, don’t be one of them! Check with your Human Resources Benefits Department to ensure that you have maxed out on your retirement contribution, and match with your employer for the year 2020.
Mileage Log and Expenses
If you are a business owner, now is the time to begin putting together your mileage log, review preliminary business expenses and find receipts. If you pay contractors, ensure that they complete IRS Form W-9 with the required information. Pay all deductible expenses prior to December 31, 2020 to reduce tax liabilities.
Holiday tips are about showing gratitude to those who have rendered invaluable service to you throughout the year. But while you are looking out for others do not forget to pay attention to the end of year financial moves that will better position you for 2021.