Simple 2019 Year End Tax Planning Tips That You Should Know

When we reach the end of summer I always get the feeling time seems to move faster. Kids head back to school and then the holidays come in rapid succession until we reach New Year’s Eve and we don’t know what happened to the year.

Other than resolutions to eat healthier and work out more, our attentions are turned to getting organized for tax preparation. I’d like to propose a “novel” idea: start now so it won’t be such a daunting task come January and you will have more time to work on that diet and get to the gym.

The first step is to reacquaint yourself with the 2017 Tax Cuts and Jobs Act and its many changes to the tax code.

Some of those changes include new tax brackets, new tax rates within those brackets, changes to limits, credits and deductions.

• The state and local property tax (SALT) deduction is now capped at $10,000.

• Mortgage interest deduction is limited to interest on $750,000 of debt.

• It’s important to  keep in mind, there is a difference between a tax credit and a tax deduction.  A tax credit directly reduces the taxes owed by the full amount of the credit.  A deduction will reduce taxes owed but not dollar for dollar.

Above all--Don’t forget all of the changes are set to sunset December 2025 if new legislation doesn’t make them permanent by then.  But for the moment, not to worry because not much has changed from 2018 to 2019.

What changed?

• Tax Brackets remain the same but there is a Cost of Living Adjustment for inflation. 

• Capital Gains - No change from 2018 but a reminder - if dividends are considered qualified then you get the benefit of being taxed at a lower rate. Also if you can, hold investments for more than 1 year to get favorable tax treatment. Capital gains rates are lower than ordinary income rates. NOTE: If you are in the lowest tax bracket then your capital gains tax could be 0%!

• Many taxpayers will still not itemize deductions this year because the Standard Deduction increased significantly last year and it also will have an inflation adjustment for 2019. In addition, if you are over 65 or blind you get an additional amount of deduction.

• Unreimbursed medical and dental expenses were deductible to the extent they exceeded 7.5% of adjusted gross income in 2017 and 2018.  Now in 2019, they must exceed 10% again as it was in the past.

So what can you do as we round the bend into the last quarter of 2019?

Maximize contributions to your 401k

“I saved too much for retirement”, said no one ever.

You should review what your projected needs will be for your “golden years”, since you may choose to retire earlier than your parents, you may live longer than them and you may require more costly medical care during your extended lifetime. 

Maximize your contributions to a retirement plan such as a 401k. Make sure you are contributing enough to get the full employer’s match if you are fortunate enough to have one.

Then make sure you are putting aside as much as you possibly can to reduce your taxable income and get tax-deferred growth on your money.  2019 limits are $19,000 or $25,000 if you are 50+.

Contribute to or open an IRA

Anyone with earned income can contribute to an IRA. You may or may not qualify for a tax deduction, but your money  can still grow tax deferred for you.

In 2019 you can contribute $6,000 or if you are 50+ you can contribute $7,000. Roth IRAs have different earnings limits but the same contribution limits and allow your money to grow tax free. 

Contribute to or open a Health Savings Account

Health Savings Accounts are for those people who have a high deductible health insurance plan (out of pocket expenses of $6750 for individual and $13,500 for families and minimum annual deductibles of $1350 single/ $2700 family).

You can contribute $3500 single/$7000 family for 2019. There is a $1000 catch up for 55+.

NOTE: Once you turn 65 and begin Medicare coverage you can no longer contribute to an HSA so take advantage while you can because you can keep what’s in there growing tax free and use it for as long as the money lasts to cover health care expenses.

Save in a 529 Plan

Save in a 529 plan if you have children or grandchildren you wish to help with education costs. These plans allow money to grow tax free. The funds can now be used now for elementary school as well as secondary education. They can be used for tuition at a public, private or religious school as well as some other eligible expenses.

Tax Loss Harvesting

If you have an investment account, now is the time to Tax Loss Harvest. If you have a large capital gain perhaps now is a good time to sell an investment that is at a loss to help reduce the taxable gain.

Remember here not to let the tax tail wag the dog. Only sell if you either don’t want the security or the loss is enough to be impactful.

Once a security is sold at a loss, you can not repurchase it or anything substantially similar for 30 days prior and 30 days after the sale of the security that created the loss. This is known as the Wash Sale Rule. 

Remember to think about Estate Tax

The lifetime exclusion in 2019 goes up to $11.4 million so unless everything you own when you die exceeds this amount, you will not have a federal estate tax to pay.

It is important to remember though that gifts to individuals during your lifetime (in excess of $15,000 this year) will start to chip away at the $11.4 amount.

Gifts to spouses and charities, educational and healthcare institutions for educational and healthcare costs are unlimited.

Keeping your goals in focus

Needless to say, it is a good time to visit with your financial professionals. Start with your financial advisor.

If he/she is more than just a money manager, it is smart to have a financial plan run to see if you are on course to reach your financial goals.

Check-in with your accountant before the busy season to see if there are ideas a CPA can offer. He/she may even run a proforma tax return if you have a significant change to your tax situation from last year.

Finally, check with your attorney to make sure wills, trusts, POAs, and healthcare directives as well as beneficiary designations on plans, IRAs, and life insurance are up to date.

Now get out there and take a walk---get an early start on the next New Year’s Resolution!

Written by Lori Johndrow

Lori is a 35-year veteran in the financial services industry. She is both a Retirement Income Certified Professional ® and Accredited Investment Fiduciary ®. Both areas lend themselves to helping her aid people in creating lasting wealth.