By John J. Renner II
Where did 2019 go? It feels like we just finished filling out our 2018 tax returns and now it’s almost time to do the same for 2019. Are you ready?
Sure, it’s a busy time of year and everyone’s getting ready for the holidays, but have you thought about your taxes? More specifically: Have you checked your 2019 tax withholding?
Proper tax planning throughout the year can help avoid surprises on April 15 when you file your tax return.
The Tax Cuts and Jobs Act of 2017 reduced tax rates, eliminated or reduced many deductions, eliminated personal exemptions and increased the standard deduction.
When filing 2018 tax returns, many found out that itemized deductions for state income and real estate taxes are capped at $10,000, and miscellaneous itemized deductions, such as investment advisory fees, are eliminated. Many opted to take the higher standard deduction amount.
Yes, there’s less than a month remaining in 2019, but there are still things you can do.
- If you earn a year-end bonus, consider deferring it to 2020. Your taxable income on your W-2 is based on the paychecks your employer writes through December 31, 2019. Delaying the bonus check until January or later delays the taxable income as well.
- If you have a business, defer income to 2020. Accelerate deductible expenses. You can deduct that new laptop through bonus depreciation, so buy it before year-end.
- Check the amount of tax withheld and adjust if necessary. If you’re short on payroll tax withholding, now’s the time to withhold some extra to catch up before year-end.
- Contribute the maximum to your 401(k). Contributions to your 401(k) reduce your taxable income.
- Offset capital gains and capital gain dividends with capital losses. Review your investment portfolio for stocks in a loss position and consider selling them before year-end, to offset your capital gains from other sales. You can only deduct $3,000 of capital losses over and above your capital gains. If you have more net losses, you’re limited to a $3,000 deduction and the rest get carried forward.
- If you have capital losses carried forward from previous years, review your investment portfolio for stocks in a gain position and consider selling them before year-end to use up your loss carryforwards.
- Make charitable contributions before year end. They still count as itemized deductions under the new tax law. If 2019 is a big income year for you, consider contributing to a donor advised fund. This allows you to take the deduction now and then distribute the money to your favorite charities over time.
- If you’re over age 70½, you’re probably taking required minimum distributions from your IRA. Instead of adding these to your income and then making charitable contributions, you can make qualified charitable distributions directly from your IRA to your favorite charities. A qualified charitable distribution is a direct distribution from the retirement plan that’s not included in taxable income and is not an itemized deduction. It’s an overall win – the charity receives a contribution and your IRA distribution is not taxable.
- Self-employed individuals who don’t have employees can adopt a solo 401(k) retirement plan. This plan allows you to deduct up to $19,000 as a 401(k) contribution and allows you to deduct an additional amount – up to 20 percent-of your self – employed income. The plan must be adopted by Dec. 31. It’s a great way for self-employed people to fund their retirement.
- Bundle your medical expenses. Medical expenses are an itemized deduction limited to 10 percent of your adjusted gross income. If you’re already over that threshold or close to it, accelerate the purchase of glasses, hearing aids and medical supplies and consider scheduling elective procedures in December instead of January.
As you might expect, there are more details to know about all of the items above. Check with your tax advisor to determine what works best for your situation.
Then start planning for 2020.
John J. Renner II, CPA, CFF, CMGA, is managing director of Renner and Company, CPA, PC.