Three Last-Minute Ways to Save on Your Taxes
It's not too late to save on your 2020 taxes. Here are some last-minute ideas:
New Charitable Contribution Deduction
The Cares Act included a $300 "above the line" deduction for charitable contributions. What this means is that you can deduct up to $300 in contributions without having to itemize on your tax return. Qualified contributions include donations to churches or 501(c)(3) charities, also government entities like your local school system or fire department. Contributions to political organizations do not qualify.
If you have a high-deductible health insurance plan, there is no reason not to make the maximum contribution to it every year. The maximum amount allowed for 2020 is $3,550 for self-only coverage or $7100 for family coverage. This amount is increased by $1000 if the account owner is 55 or older by the end of the year. This is a deduction that does not phase out based on your income, so everyone with a high-deductible plan can take advantage of it. In the event you don't use it for medical bills, you can take it out later for retirement with no penalties, just regular income tax. You have until the due date of your tax return (not including extensions) to make a contribution, so for most people, the deadline is April 15, 2021.
College Choice 529 Plan
If you live in Indiana and have kids or grandkids, you should be taking advantage of Indiana's College Choice 529 Plan. It's a great way to transfer money to the next generation and help them get an education. You can get a 20% credit on your state tax return for up to $5,000 in contributions, resulting in a maximum credit of $1000. This is not a deduction, but a credit that is subtracted from your tax liability (or added to your refund)! What if your kid decides he or she isn't going to college? As long as you are the account owner, you can change the beneficiary at any time. You can even make yourself the beneficiary. Use the money on college expenses (or in some cases, K-12) and you will not have to pay tax on the earnings. This is available to anyone, regardless of their income level.