General Tax Planning Moves
- Higher income filers ($250,000 married filing joint; $125,000 single) may be subject to the additional 3.8% Net Investment Income Tax. This is based on the calculated amount of the Adjusted Gross Income.
- There is also the additional 0.9% Medicare tax on these high-income earners.
- Postpone income to 2020, if possible.
- Consider using a credit card to pay deductible expenses. The expenses are deductible in 2019 while the credit card payment will be due in January.
- Make maximum contributions to your retirement savings plans.
- Employees should know how much their employer will set aside for their Flexible Spending Accounts so make full use of these benefits.
- Taxpayers are eligible to make full year contributions to their Health Savings Accounts.
- Annual Gift exclusion remains at $15,000 per person per year.
- Disaster losses are only available in a federally declared disaster area.
- Moving expenses are no longer deductible with the exception of the military.
- Defer debt-cancellation to 2020 if possible.
Estimated TaxesFor those that are self-employed, make sure your estimated payments are timely filed. We advise that you do not wait to pay until your April 15, 2020 filing or with your extension. The IRS is cracking down on those who underpay estimated quarterly payments.
Itemized DeductionsAs a result of the 2017 tax overhaul, many taxpayers will not have enough itemized deductions to qualify for these write-offs and instead the higher standard deduction will be more beneficial.
The standard deduction for 2019 is $12,200 for single filers and $24,400 for married couple filing jointly.
Please remember that State and Local Income Taxes (SALT) are now limited to a maximum deduction of $10,000. Therefore, this limit could reduce your overall itemized deductions threshold.
However, New York and New Jersey residents should provide medical expenses information since these deductions are still permitted when filing your state income tax returns. Other states have different rules about deducting medical expenses and we will advise you accordingly.
Retirement PlansMake sure your retirement plan contributions are made timely. Savers eligible for traditional IRAs and Roth IRAs can open and fund them up to April 15, 2020.
SEP IRAs for the self-employed can be set up and funded by October 15, 2020 only if extensions have been timely filed.
Solo 401(k) plans must be set up by December 31, 2019. The funding for these plans can be made by October 15, 2020 on if extensions have been timely filed.
If you are over 70½ or have started taking your retirement plan distributions, make sure these distributions are completed by December 31, 2019.
Charitable DonationsConsider making charitable gifts directly from your IRA or to increase your itemized deductions. With the higher standard deduction, you can use this strategy to increase your itemized deductions or decrease your taxable income.
Please consider the use of Donor Advised Funds or donating appreciated investments. The donor gets an immediate deduction for the full market value of the donation.
Donors with traditional IRAs who are 70½ or older can donate up to $100,000 of IRA assets directly to the charities of their choice. This strategy allows the donor to have these donations counts towards their Required Minimum Distribution and can also help lower Medicare premiums.
Capital gains and LossesFor your taxable accounts, check for any possible losses which can offset your capital gains. Losses are deductible up to $3,000 per year with the excess losses carried forward until completed used or used against future gains.
Crypto-CurrencyThe IRS is ramping up its scrutiny for those who are engaged in crypto-currency transactions. Under current IRS guidance, these transactions are considered similar to other types of investment transactions and are subject to capital gains and losses. Documentation requirements are quite strict when dealing with this asset class.
College Savings PlansThe current tax code does not allow deductions for these college-savings plans contributions. However, some states allow for these contributions to be deducted. Contributions grow tax free and withdrawals used to pay college expenses are also tax free. Contributions must be made by December 31, 2019. A few states do permit contributions up to the April 15th filing deadline.
Kiddie TaxThis tax is placed on “unearned” income (interest and dividends) of young people up to 23 years of age. The current annual exemption is $2,200. The tax brackets were revised with the new 2017 law so planning should be considered. Grandparents may choose to give stock shares to the parents rather then the children in order to avoid this tax.
Business Planning Issue: Business Pass-through DeductionThe new tax law gave a 20% deduction for the net income that businesses pass through to their owners, including real estate. There are income limits for single and married filing joint filers. Contact us for guidance on this complex issue.
Businesses can now expense $1,020,000 for most depreciable property including off-the-shelf computer software. This expensing is also available for qualified improvement property as roofs, HVAC, fire protection, alarm and security systems. Property should be placed in service by end of December 2019 in order to claim the full tax year expensing.
Businesses can also claim 100% first year bonus depreciation for machinery and equipment placed in service by the end of December 2019.
Net operating losses can only be carried forward. These losses are no longer eligible to be carried back to prior years.