Year End Tax Steps to Consider

 

This week brings Thanksgiving and heralds the end of the year is quickly approaching.  Knowing that attention is turned to the myriad of activities that occur this time of year for the holidays, it is important to be reminded to not neglect reviewing your tax situation and taking action, as needed to improve the situation.

For individual taxpayers the following are a few actionable areas to consider before year end.

1.  Capital Gains/Losses
- Review investment portfolios and determine the character of income derived in these accounts.  Did you know that Qualified Dividends and Long Term Capital Gains receive preferential tax treatment, being taxed as lower than ordinary income tax rates?  Review to see if this income will be able to remain in the lower 0 or 15% tax rate for Capital Gains.
- Consider Capital Loss Harvesting. This is selling stocks at a loss that can be used to offset losses and excess losses over gains can offset up to $3,000 in ordinary income. Careful to avoid wash sale rules, can't buy purchase similar securities that were sold for a loss or the loss is unallowed.
- For retirees, careful to watch the amount of realized gains as that could impact items such as taxable amount of Social Security income and/or Medicare premiums in future years.

2. Charitable Contributions
- Consider bunching (moving into one year or another by accelerating or waiting) charitable contributions into a year that will give greater tax benefit.  If your taxable income is projected to be higher in 2020, and you will have enough deductions to itemize, defer some contributions to January 2020 to accumulate a larger amount.
- If you have a stock owned for more than 1 year that has a significant capital gain, look at donating all or a portion of that stock to a charitable organization.  The donation deduction is allowed for the fair market value of the stock and you will not be taxed on the capital gain. The donation is limited to 30% of adjusted gross income for donating capital gain stocks.
- For retirees aged 70 1/2 or older, consider donating your required minimum distribution to a charity (up to $100,000). This has 2 advantages: 1) satisfy your required minimum distribution for IRAs and 2) avoid counting that distribution in your income for the year.

3. Retirement Plans
- If you are still working, be sure to utilize retirement savings plans such as 401K plans, IRAs and SIMPLE plans.  Contributions as an employee need to be completed via payroll deduction and done during the year, so take steps to increase contributions if you are not on track to take advantage of employer matching amounts or if you will not meet the annual limits.  The annual contribution limits increased for 2019 and have increased for 2020 as well, plus those aged 50+ are allowed to make additional contribution amounts.  Check with your employer  or our office for limits for those plans.
- Those taxpayers that have earned income (wages or self-employed income) without access to employer plans, can consider IRA contributions that can be funded until April 15th, 2020.
- For retirees age 70 1/2, you have spent a lifetime setting aside money for retirement and when you reach age 70 1/2, Congress has dictated that you have to take a minimum distribution from retirement accounts.  Failure to take that withdrawal will result in a 50% penalty of the amount required to be withdrawn.


These are just a few suggestions and may not be appropriate in all situations.  Each person's situation is different and unique, so seek competent advice for your particular situation.