2019 Year-End Tax Planning Strategies

The end of the year is fast approaching whether we are ready or not! There are several tax savings strategies that you can utilize to reduce the taxes you will be paying for the 2019 tax year.

Bunch Itemized Deductions

Bunch with Charity

With the changes of tax reform last year, it is more important than ever to utilize itemized deductions. Taxpayers can bunch their deductions in order to maximize their itemized deductions. One way is to bunch charitable deductions into one year. If a taxpayer were to bunch their charitable deductions into a single year, rather than multiple years, they would be able to utilize a higher itemized deduction in one year, and possibly take advantage of the standard deduction in the following years. One way to do this is through a donor-advised fund (DAF). A DAF is a fund that holds your charitable donations until you direct the funds to the desired charity – so it would be possible to still gift over the years from the DAF, but you would receive the deduction in the year of initial donation to the DAF.

Gifting appreciated stock is also a great way to donate to charity and avoid any gains on the stock.

Bunch with Medical

Taxpayers can also consider bunching medical expenses to maximize itemized deductions. This can be done by prepaying medical expenses or waiting to pay until the year they would be utilized.

Take out your Required Minimum Distributions

Taxpayers over 70 ½ must remember to take their Required Minimum Distribution (RMD) from their retirement plans by the end of the year to avoid penalties. Taxpayers that have turned 70 ½ during the year must start taking RMD’s. In the year a taxpayer first turns 70 ½, the withdrawal can be deferred until April, and two distributions can be taken the following year.

Inherited IRA’s also must take their RMD before the end of the year.

Gift your RMD

Gifting your RMD directly to charity is a great tax savings strategy. If donated, the distribution from the IRA would be a tax-free distribution. There would not be an additional charitable deduction, but typically this strategy is more tax advantageous.

Trigger Expenses and Defer Income

Of course, one of the simplest ways to lower tax liability would be to trigger expenses and defer income until 2020, if applicable. Cash basis taxpayers would need to pay deductible expenses by year-end in order to be deducted in 2019 or receive income after the end of the year to be considered 2020 income. For accrual-basis taxpayers these additional expenses would need to be incurred in 2019 to reduce tax liability.

Consider Gifting

2019 annual gift exclusions are $15,000 from person to person. This means each year taxpayers can gift up to $15,000 without tax consequences or triggering a gift tax return. A couple may gift up to $30,000 per person or $60,000 to another couple.

Plan for QBI

Qualified Business Income (QBI), more commonly known as the 20% Business Deduction, is a huge tax planning strategy. QBI can be dramatically influenced by bonuses, year-end expenses/income deferral, etc. It is a good idea to check in with your CPA to make sure you are maximizing this deduction.

Make Educational Contributions

529 plans have many state tax savings advantages. Look up your state’s limits to donate. In Missouri, up to $8,000 per taxpayer can be donated to a 529 plan and taken as a state tax deduction. 529 plans can now be used for private elementary and high school tuition as well as all college tuition.

Other Reminders

A few other reminders for year-end:

  1. Some trust distributions need to be taken by year-end.
  2. Consider harvesting capital losses to offset capital gains.
  3. Make sure you have contributed to your retirement plan.

Even though our time is ticking down until 2020, there is still time to review your tax situation. Contact an Anders advisor and we would be happy to discuss these strategies and more.