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7 tax tips for 2020

The best ways to save time and money this tax season

The new year has come and gone and the winter freeze is starting to thaw. Holiday cards and new year well wishes in your mailbox have turned into W-2s and other tax forms, signaling the start of the next major calendar event: tax day.

Many people think that once the earnings year has ended, their tax bill is final. But the good news is that there are many tax tips for 2020 that can help you save both money and time. From claiming credits to maximizing your tax-deductible contributions, here are our top tax tips, just in time for April 15.

Tax tip #1: Get organized

The changes to the tax laws from the Tax Cuts and Jobs Act of 2017 have changed the deductibility of certain expenses – such as home mortgage interest, state and local tax payments, etc. – so you want to make sure you allow yourself enough time to familiarize yourself with the new rules, if you are filing your own return.

If you are working with a tax preparer, you’ll want to make sure you gather all of the appropriate receipts and other important tax documents as soon as possible to give them the adequate time to work on your return.

Tax tip #2: Don’t miss out on deductions

Many people take the standard deduction – a flat amount that everyone is allowed to deduct with no questions asked – because it’s easier. Plus, the Tax Cuts and Jobs Act created a higher standard deduction. The standard deduction for taxes filed in 2020 is $24,800 for married couples filing jointly and $12,400 for singles. If you think you can claim more than that, you could save by itemizing your deductions. This is especially vital for homeowners and self-employed individuals, who may be able to deduct more than the standard amount.

Some of the most common tax deductions are for charitable donations, mortgage interest and property tax and sales tax. One of the best tax tips for 2020 filings is to deduct medical expenses that exceed 7.5% of your adjusted gross income; this will rise to 10% for the 2020 earnings year, so deduct while you can. And self-employed filers will want to claim the home office deduction.

Tax tip #3: Claim all your eligible credits

What’s really the best 2020 tax tip? Don’t leave money on the table! While many Americans are expected to take advantage of the higher standard deduction instead of itemizing their deductions this year, don’t forget to look into any tax credits you might be eligible to claim. Tax credits are more valuable than deductions on a dollar-for-dollar basis since they directly reduce the amount of taxes owed. Some credits are refundable, which means you can get money even if you don’t owe any taxes. The IRS estimates that 20% of taxpayers eligible for the Earned Income Tax Credit won’t claim it.

Tax tip #4: Avoid penalties and interest

If you won’t be able to file your taxes by the April deadline, you may be able to file an extension. File Form 4868 by April 15, 2020 to avoid an expensive late-filing penalty – which can be as much as 22.5%. Remember that an extension to file is not an extension to pay; you still need to pay your estimated tax bill (with 90% accuracy) to avoid any penalties and interest.

If you can’t pay the full bill, pay as much as you can when you file your extension, and then apply online with the IRS for a payment agreement, or include an Installment Agreement Request with your filing for the outstanding balance.

Tax tip #5: Maximize your tax-deductible contributions

If you are currently maxing out your 401(k) – the contribution limit for 2020 tax filings is $19,500 per year – you have two additional options to consider. You may want to add a profit-sharing plan that would allow an additional tax-deductible contribution of $56,000.

If you want to go even further, many are unaware that you can add a “cash balance plan” as well. Depending on your age, this would create a potential six-figure deductible contribution. For example, a 49-year-old can contribute $151,000 per year into a cash balance plan which would be fully tax deductible. When you add this amount ($151,000) to the 401(k) contribution ($19,000) and the profit-sharing contribution ($56,000), that comes to a total tax-deductible contribution of $207,000! The older you are, the more you can contribute to cash balance plans.

Tax tip #6: Proofread your return

This isn’t just a tax tip for 2020, but for every year: make sure your return is error-free. The most common cause of processing delays is human error – typos. Names and Social Security numbers are vital, as is making sure you choose the right filing status. Check your math, and always make sure you signed your forms. Keep a copy of the signed return for your records. Ensuring your return is correct will get you any refund you are owed faster – and keep you out of the IRS’s sightlines for an audit.

Tax tip #7: File electronically

Of all our 2020 tax tips, this one makes your life the easiest. When you file using an electronic software – or better yet, hire a professional to file your taxes – you’ll have a built-in fact checker and proofreader. Plus, the IRS will confirm it received your return and check it to make sure it’s complete – two things they don’t do for paper returns. Most importantly, your return will be processed faster, meaning you get any refunds faster.

Want more tax tips for 2020 and beyond? Discover key advice from top investors on tax tips and advantages with a free paperback copy of Unshakeable by Tony Robbins.

Tony Robbins

Tony Robbins is an entrepreneur, bestselling author, philanthropist and the nation’s #1 Life and Business Strategist. Author of five internationally bestselling books, including the recent New York Times #1 best-seller UNSHAKEABLE, Mr. Robbins has empowered more than 50 million people from 100 countries through his audio, video and life training programs. He created the #1 personal and professional development program of all time, and more than 4 million people have attended his live seminars.

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