4 August tax moves to make during pandemic Dog Days
Monday, August 03, 2020
Hello August! These annual hot and, here in Central Texas, sticky days of late summer usually are a transitional time.
Families take one last summer vacation. Parents and kiddos (but mostly parents) get ready for the return of school.
Not so in 2020.
The coronavirus pandemic continues to keep much of our lives on hold, like those final holiday trips and school openings.
Taxes, though, are more persistent.
Yes, COVID-19 did delay Tax Day until last month. But as far as the rest of the tax realm is concerned, there still are some matters that must be considered.
That means the standard post-filing tax tasks we usually tend to in May now are on our August tax to-do lists. And in many cases, we also must look at them through a pandemic filter.
With all that in mind, here are four tax moves to make during these Dog Days of late summer.
1. Make work-related tax touch-ups: If you found when you filed that you were due a big refund or owed Uncle Sam a lot and you still have your job, now is the time to do a paycheck check-up to see if you need to adjust your pay's withholding.
You also should look at your workplace retirement plan. If you're withholding adjustments mean more pay, shift some of that money into your 401(k) for the last few months of the year.
Of course, if you're one of the millions who have been laid off, either short term or permanently, due to the economic chaos caused by the coronavirus pandemic, you have some other [non]work-related tax considerations.
Did you get unemployment benefits? Those payments are taxable income. That means even with a reduced cash flow, you need to figure out how you're going to handle that tax bill. Since you've only been getting the government benefits part of the year, it might be worth the extra work to use the annualized method to figure your estimated tax payments.
Estimated taxes also apply to any earnings you've been able to make during the COVID-19 crisis by picking up some side hustle jobs.
While the next estimated tax payment deadline isn't until next month, you should start thinking about how you'll meet it now. Why? Because when estimated taxes, like all other collections the IRS makes, are late or too little, penalties and interest apply.
In some cases, notably when the missed or underpayment was due to a casualty, disaster or other unusual circumstance and, in the IRS' own words, "it would be inequitable to impose the penalty," the assessment might be waived.
That possible relief is something to know when you file next year. But if at all possible, try to pay any expected tax due on your unemployment benefits or gig work.
As for your workplace retirement plan, if you find you must tap it to cover some (or all) daily living expenses, coronavirus tax law changes make withdrawing nest egg money a little less costly, as least as far are early distribution penalties apply.
2. Be a safe and smart back-to-school shopper: It might not be back to school in the traditional real-life return to classrooms, but retailers in some states are still offering savings via sales tax holidays.
Sixteen states scheduled back-to-school tax holidays in 2020, with most of them — in Florida, Iowa, Missouri, New Mexico, Ohio, Oklahoma, South Carolina, Texas and Virginia — set for the weekend of Aug. 7-9.
Elsewhere on the tax holiday calendar this month:
- Tennessee hopes to spur food sales with its Aug. 7-9 event that offers tax savings on food and drink sold by restaurants.
- Maryland's week-long tax-free event starts this Aug. 9 and runs through Aug. 15.
- Connecticut's holiday is set for Aug. 16-22.
- Massachusetts closes out the summer sales tax holidays on the last week of the month, Aug. 29-30.
Savvy shoppers can check out these six tax holiday shopping tips to ensure you maximize their savings.
Also make sure that if you're going to stores in person instead of ordering online or taking advantage of curbside pickups, mask up and keep your social distance from other seekers of sales tax savings.
Your state or local government might not have mandated these precautions, but they are just common sense. You don't want to waste any of your tax savings on paying doctors' bills.
3. Give if you can: Some folks are managing to get through the pandemic relatively unscathed, both physically and financially. If your health and bank account are in decent shape, you might want to consider giving to those who are struggling.
Food banks are taking an especially hard hit, as an unusually high number of folks need the provisions to help feed their families. Other nonprofits are helping health care workers. Some focus on getting schools and families the supplies they need for safe classrooms and/or making remote learning more accessible.
Charity Navigator has an online list of charities that have created funds to support communities around the world affected by the pandemic. Giving to one of them or to a nonprofit in your area also might help reduce your own tax bill a bit.
The Coronavirus Aid, Relief and Economic Security (CARES) Act included an expanded tax break for charitable gifts. The write-off is a new above-the-line deduction for cash donations of up to $300. That means it's available to every filer, regardless of whether you itemize or claim the standard deduction.
4. File your taxes: If you missed the filing deadline, regardless of whether it slipped by you or you submitted Form 4868 to get an extension, consider being fulfilling your annual tax obligation sooner rather than later.
Just because you got an IRS OK to wait until Oct. 15 doesn't mean you have to wait until then. In fact, the IRS probably would appreciate getting more of these extended returns in the weeks and months before the final due date.
The agency also still recommends that you file electronically. If you qualify to use Free File, that online IRS/tax software industry no-cost tax prep and e-filing partnership option is still available.
More monthly tax moves: Want some more hot August tax moves to fill up your COVID quarantine hours?
You'll find them over in the ol' blog's right column, under the August Tax Moves header that's just below the clock counting down the days until the Oct. 15 filing extension deadline.
While it's tempting to just chill during these last lazy, hazy days of summer, I suggest you be a bit more active that the worn-out Pembroke Welsh Corgi puppy that leads August's sidebar tax tip list.
A little bit of tax energy this August could pay off in the coming months and definitely when next year's filing season heats up, too.
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