2021 is hurtling at us, isn’t it? May it ever come sooner.
Well, except for this part:
I’m here to remind you that while we can (and, often, do) do wonders with “after the fact” tax return information, the best work we can do for you and your Skagit County business is to help you get ahead of the upcoming filing season, and plan now for how to best position your income, assets, and other revenues for the most favorable tax positions possible.
But doing so requires your participation in our planning.
Let’s make some tax-smart moves before 2020 comes to a close.
Here’s one not many people are talking about: tax-deductible, employer-paid student loan payments.
Hidden within the CARES Act was this gem: employers can pay up to $5,250 to employees as student loan repayment assistance and it will not be taxable income to the employee. Employers can ALSO deduct the amount and not pay federal payroll taxes on the payments.
So if you’re an “employee” of your own Skagit County business, and you have outstanding student loans, here’s what to do:
- Make a written plan (there are some provisos here — more in a moment)
- Make a payment to your student loans up to $5,250
- If you’ve previously made a payment, cut a “reimbursement” check to yourself
- Deduct it as a benefit expense
Here are the provisos:
This only works if these are for federal (not private) loans and the payments must be made by December 31, 2020. On top of that there must be a written plan set forth that needs to fully describe eligibility, benefits, and rules of operation. These should include that employers must provide “reasonable” notification of the availability and terms of the program. Also, you may limit eligibility, but any discrimination cannot be in favor of highly compensated employees.
Still, a nice little perk that most don’t know about.
Here are some more “quick and dirty” ideas to help you before year-end…
- Look ahead to 2021 — project what your income might be, then make withholding and tax moves accordingly. Note: anyone who tells you definitively what a Biden administration would bring for your taxes is blowing smoke. We’ll have more to say about these things as they happen. More about this in future weeks as things become more clear.
- Adjust your withholding (if you have yourself as an employee) — you still have 1-2 paychecks to catch up on any overpayments or underpayments for this year.
- Spend down your FSA (if you have one) — don’t let these funds go to waste
- Give to charity — even if you take the standard deduction, you can ALSO deduct up to $300 in cash giving. DO IT. Most Mount Vernon business owners itemize, so don’t forget to include this … especially if your business isn’t drowning.
- If you can, give tax-free gifts to family — if you have means, this is the simplest way to avoid estate taxes. You can give up to $15K tax free.
- Max out workplace retirement accounts — I know, this is “la la land” for some, but if you still get this sort of perk, you only have a few more weeks to maximize it
- Gather your virtual currency docs if you have them. IRS is scrutinizing these starting NOW
Again, if you need a conversation, now’s the time.
One more quick note: mortgage rates are obscenely low right now. If you have a mortgage, it might be worth running some numbers related to refinancing. 15-year rates were under 2% last I checked … which is the lowest I’ve ever seen.
This is that time of year when I start in on writing these notes, and then get 600 words in, and realize that I’ve said enough. LOTS of stuff to deal with during year-end. Make sure you’re maxing out those IRA’s and “using up” the 24% bracket.
If you don’t have an IRA, or you don’t know what I’m talking about, that’s fine.
But if you do, and you haven’t taken this action (or any of the above) we’re right here: 360-424-1040
There simply aren’t very many working days left before year-end, so let’s maximize what we do have.
To more of what’s yours, in your pocket…
Padgett & Padgett, PLLC CPA
Feel free to share this article with a Skagit County area (or beyond!) business associate or client you know who could benefit from our assistance. While these particular articles usually relate to business strategy, as you know, we specialize in tax preparation and planning for families and business owners.