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Seven Year-end Tax Moves to Make for 2019

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This is the second year since passage of the Tax Cuts and Jobs Act in December of 2017. If like many people you’re still adjusting to the new rules, now is a good time to start sorting things out with the end of the year approaching.

Here are 7 tax moves to consider between now and December 31.

  1. Re-examine your tax withholding. Tax reform’s changes in marginal tax rates resulted in some unpleasant surprises for many people last year when they got much smaller tax refunds than they were expecting — or no refunds at all. For example, average refunds in 2018 for taxpayers earning between $100,000 and $250,000 dropped by 11%, according to the IRS.

One way to determine how much money you should have withheld from your paycheck to cover taxes is to use the IRS’s withholding estimator. Based on this, you can adjust your withholding and help control the amount of your refund. If you determine that you haven’t had enough withheld to cover your taxes so far, you generally won’t be assessed a penalty if you increase your withholding before the end of the year.

  1. Re-examine your estimated tax payments. If taxes aren’t automatically withheld from your pay — such as if you’re self-employed, for example — you generally must make estimated tax payments on a quarterly basis or risk being assessed tax penalties. This is a good time to determine whether your estimated tax payments are sufficient and make adjustments, if necessary. The sooner adjustments are made, the less likely it is that penalties may be assessed.
  2. Analyze your itemized deductions. Due to tax reform’s increase in the standard deduction and new limitation on deducting state and local taxes (or SALT), more than 25 million taxpayers decided not to itemize their deductions last year. The percentage of tax returns that included a Schedule A with itemized deductions dropped from around 30% to around 10%.

For tax year 2019, the standard deduction will be $12,200 for singles and $24,400 for married couples filing jointly. Now would be a good time to think about whether you will have enough deductions in the form of SALT, charitable donations, mortgage interest and other deductible expenses to make itemizing worth the extra effort when you file your 2019 return next year.

  1. Finalize charitable giving strategies. Keep in mind that if you don’t file Schedule A to itemize deductions, you won’t be able to deduct contributions you make to qualified charities. One solution is to combine several years’ worth of charitable contributions into one large donation made before year-end that would push your total deductions above the standard deduction amount.

Another strategy is to create a donor-advised fund (DAF). With a DAF, you can make contributions to one or more qualified charities and receive a deduction. Or, if you have a traditional IRA and are at least 70½ years old, you can donate up to $100,000 a year from your IRA directly to charities via a qualified charitable distribution. Doing so effectively increases your standard deduction, which lowers your adjusted gross income and the amount of taxes paid.

  1. Evaluate your capital gains and losses. If you have incurred investment losses this year, you can use them to offset up to $3,000 in capital gains and ordinary income (such as wages) earned in 2019. If you own under-performing investments and you don’t expect them to recover any time soon, it might make sense to sell them before the end of the year and book the loss to offset 2019 income.

Note that if you don’t use all of your investment losses this year to offset income, these unused losses can be carried forward to future years, as can losses of more than $3,000. Investments sold at a loss or similar securities can be bought back after 30 days.

  1. Consider shifting income. This strategy can help you lower your 2019 tax bill by pushing some income into next year and accelerating some deductible expenses into this year (assuming you itemize deductions). For example, maybe you could ask your employer to pay a year-end bonus in early January instead of late December. Or if you’re self-employed, you could hold off on sending out December invoices so you don’t receive payment until January.

Meanwhile, tactics for accelerating deductible expenses include making your January 2020 mortgage payment before the end of the year and pre-paying property taxes that will be due early next year.

  1. Make additional retirement plan contributions. If you itemize deductions, this is one of the best ways to save current taxes while also boosting your retirement savings. This year, you can contribute up to $19,000 or $25,000 if you’re 50 years of age or over to your 401(k). If you have a traditional IRA, you can contribute up to $6,000 this year or $7,000 if you’re 50 years of age or over.

Note: These contributions don’t have to be made by December 31. You have until your tax-filing deadline (including extensions) to make deductible retirement plan contributions, but now is a good time to think about how to maximize your deductible contributions.

Be sure to consult with your tax professional and financial advisor about these and other year-end tax planning strategies.

The commentary is limited to the dissemination of general information pertaining to Frontier Wealth Management, LLC’s (“Frontier”) investment advisory services. This information should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation for any security, market sector or investment strategy. There is no guarantee that the information supplied is accurate or complete. Frontier is not responsible for any errors or omissions, and provides no warranties with regards to the results obtained from the use of the information. Nothing in this document is intended to provide any legal, accounting or tax advice and Frontier does not provide such advice. This information is subject to change without notice and should not be construed as a recommendation or investment advice. You should consult an attorney, accountant or tax professional regarding your specific legal or tax situation.