The end of the year is here, and while dealing with the hustle and bustle of the holiday season, you should also stop and think about taxes. If you act quickly, there are all kinds of steps you can take now to reduce your 2020 tax liability and even a few things you can do at the beginning of next year.

1. Defer Income

If possible, ask your boss to delay end-of-the-year bonuses or paychecks until January so you don’t have to report that income on your 2020 tax return. Work for yourself? Then consider delaying invoicing or giving your clients extra time to pay.

end of year tax moves to reduce taxes 2020

2. Donate to Charity

Spread some holiday cheer by making a donation. If you itemize, you can deduct the entire value of donations made to qualifying charities, and even if you don’t itemize, you may be able to claim charitable deductions on your state return.  Don’t forget you can also claim deductions for the miles you drove for charitable work, and if you don’t have the cash to donate, you can use a credit card and claim the deduction regardless of when you pay off the card.  To make the most of your efforts, consider giving appreciated stock or property. Then, you can deduct the market value of the property on the day of donation, but you don’t have to incur or pay capital gains.

3. Sell Losing Investments

Worried about facing capital gains on investment income? Then, find some losing stocks in your portfolio, sell them, and use the loss to offset your capital gains. As an added bonus, you can use up to $3,000 in capital losses to offset ordinary income.

4. Pay SALT Taxes Early

Itemizers can deduct up to $10,000 in state and local taxes (SALT). If you haven’t reached your limit yet, consider paying your 2021 quarterly state income taxes or property taxes early. Remember to track all the state sales tax you pay on your holiday shopping too — that can also help you optimize your SALT deduction.

5. Make Section 179 Purchases

Small business owners can rack up significant deductions with Section 179. This part of the tax code allows you to deduct the entire cost of qualifying capital expenses the year you place the property into service, and it applies to the purchase of qualifying equipment and property worth up to $1 million.  For instance, if you buy a truck to use for your landscaping business and you plan to use it for business more than 50% of the time, you may be able to write off the business portion of the expense in the year of purchase. Even if you take out a loan and pay nothing down, you still get to write off the business portion of the truck right away, and during subsequent years, you can claim the interest on the loan as a business expense.    When used strategically with a loan, the Section 179 deduction can help reduce your 2020 income on paper, while allowing you to defer paying on your equipment purchases.

6. Pay Off Old Medical Bills

If you itemize, you can deduct medical expenses, but only if they exceed 7.5% of your adjusted gross income (AGI). To increase the value of this deduction, consider paying off your medical bills in batches. If possible, catch up on old payments and prepay whatever you can.

7. Don’t Forget Your Flexible Spending Account

If you have a flexible spending account through work, you may lose your benefits if you don’t spend them by the end of the year. Ask your employer if they have a grace period — the IRS allows grace periods through March 15, 2021.

8. Contribute to a Retirement Account

Contributions to qualifying retirement accounts are completely deductible. If you haven’t met the thresholds for the year, consider putting away any extra funds you have. You can contribute up to $19,500 to your 401(k) or up to $6,000 to your IRA. If you’re over 50, the limits are $26,000 and $7,000 respectively.   With an IRA, you have a bit of extra time — you can deduct contributions made up through April 15, 2021, on your 2020 tax return. Talk with your accountant or play with the numbers on your tax prep software. Depending on your income level and tax bracket, contributing to an IRA can often make the difference between facing a tax bill or earning a refund.

9. Take a Class

The Lifetime Learning Credit lets you deduct up to $2,000 in tuition costs. Thinking about taking a class next year? Then, sign up and pay for it now so you can claim the deduction on your 2020 tax return.

10. Hire Your Kids

If you own your own business, you don’t have to deduct Social Security and Medicare taxes from your children’s earnings. Hiring them for a week at the end of the year won’t create a significant deduction, but they may have been working for you all year.    Have they been taking out the garbage in your home office, fielding calls when you aren’t around, filing papers, or doing other small tasks for your business? If you’ve been paying them cash for these jobs, it’s time to make the arrangement official and optimize this deduction.

11. Pay Deferred Payroll Taxes

If you’ve been deferring payroll taxes under the CARES act, you don’t have to repay the first half of your deferred payments until December 31, 2021, and you don’t have to pay the second half until the following December.    Take advantage of the extra time if needed, but if you have extra money lying around, consider paying these deferred taxes now and deducting the payment from your 2020 business income.

12. Decide If You Want to Be Taxed as an S-Corp

This move won’t help your 2020 tax return, but if you want to elect to have your business taxed as an S-corp for 2021, you need to decide and get in the paperwork by March 15 or 75 days after the end of your business’s tax year.    To see the potential advantage, look at this quick example. Say your business earns $100,000 and it all flows straight to you. As a sole proprietor, you face a payroll tax bill equal to 15.3% of those of earnings plus you have to pay income tax on the entire amount.    Now imagine you elect to be taxed as an S-corp and you pay yourself a $60,000 salary. Now, you pay half the payroll tax on these earnings, your business pays the other half, and you face income tax on this amount as usual. Then, the remaining $40,000 flows to you as business profit, meaning you still have to pay income tax on this amount but you avoid the 15.3% payroll tax on these earnings. With this basic example, you’ve just saved over $6,000.    That’s a wrap. To lower your tax liability, you need to find ways to reduce your income on paper while increasing your deductions. Keep in mind, though, if your income is lower than usual this year and you expect it to bounce back next year, you may want to save some of these strategies for 2021.