The first quarter of 2020 brought a worldwide pandemic. This not only raised concerns about everyone’s health and safety, but fundamentally changed the way we live. Many people started working from home or found themselves out of a job. The pandemic also created market volatility that impacted investment and retirement accounts. Along with COVID-19, many areas of the country experienced severe natural disasters. Events such as hurricanes, earthquakes, and fires left millions without homes. Lastly, the unprecedented 2020 presidential election left many unsure of the election results. Even so, we should take steps to prepare for 2021.
What to Prepare for in 2021
Many believe that 2021 will usher in the introduction of a COVID-19 vaccine and the associated promise of a return to some level of normalcy. Nevertheless, it is unlikely that this return to life-as-usual will occur in January. Even so, life marches on. Busy as ever, many of us supervise kids (in-person or virtually), pursue new employment opportunities and/or adapting to new work environments. What’s more, most of us are adjusting savings and investment goals. In the midst of it all, don’t forget to prepare for whatever 2021 may bring. We want to remind you to take steps to make your life easier with your estate, financial, and tax planning. Consider these important items as the year comes to a close.
Prepare by Maximizing Contributions to Retirement Accounts
The majority of Americans faced some type of disruption in 2020. In many cases, these disruptions included job changes and the establishment of a new 401k accounts. Or they may have led to a reduction or suspension from regular paycheck-related contributions to your retirement accounts. As a result, you may not have maximized your annual retirement contributions in 2020. Depending on your current employment status, don’t forget to restart these. Otherwise, you run the risk of missing out on the opportunity to maximize annual contribution limits. Although the IRS routinely allows people to make such contributions after the first of the year for the preceding year, it is wise to make them before the end of the year, if possible.
How to Prepare Tax Returns
Now is the right time to start pulling together tax records to prepare to file 2020 tax returns. The sooner you begin to assess your tax bill for 2020, the earlier you can prepare to pay the IRS or cplan how to use a refund. In either case, prepare now for tax season. Begin gathering the following information and documentation in preparation for filing your tax returns:
- Business expense records
- Charitable donations
- Home office expenses
- Mileage records
- Property tax payment records
- Receipts for medical expenses and health insurance coverage records
- Social Security numbers and birthdates for everyone to be included on your return
- W-2 forms, 1099 forms, bank or financial institution tax statements, miscellaneous income records (e.g., gambling or lottery winnings)
Review Your Estate Planning
SECURE ACT Implications
This year introduced significant tax and retirement changes relative to estate planning. The Setting Every Community Up for Retirement Enhancement (SECURE) Act was passed in late December 2019. It majorly impacts estate planning for anyone with significant savings in tax-deferred retirement plans. Because of the changes, people can no longer stretch out minimum distributions from an inherited IRA over the lifetime of the person inheriting the IRA. Unless a beneficiary is a spouse or otherwise qualifies as an Eligible Designated Beneficiary, the retirement account must now be paid out within ten years of the plan owner’s death. Although this change generated media attention early in the year, it paled in comparison to the COVID-19 pandemic coverage. So the change surprises many people. In fact, many remain unaware of how the changes might impact their estate planning.
About Skvarna Law in Glendora and Upland, California
Skvarna Law Firm operates offices in Glendora and Upland, California. We provide legal services. We cover San Bernardino, Los Angeles, Orange, and Riverside Counties. This includes several cities. Upland, Ontario, Rancho Cucamonga, Fontana, Colton, Rialto, Chino, Chino Hills, Glendora, Claremont, Pomona, La Verne, Montclair, San Dimas, Azusa, Covina, West Covina, Diamond Bar, Walnut, La Puente, Corona, Norco & Mira Loma. Visit SkvarnaLaw.com to learn more.
