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Year End Tax Reminders

Updated: Mar 3


Tax season may seem like the distant future but it will be here before you know it! Luckily, there are some key steps you can take now to set yourself up for success when it comes to your taxes.


Here’s what to do NOW to help with your 2019 taxes:


Check your withholding

The IRS withholding tables were updated to reduce withholding to account for the lower tax rates and expanded brackets after the most recent tax law was passed. This plus the loss of many itemized deductions means that some workers are more likely to be under-withheld, which may result in either a smaller refund than anticipated or, even worse, a surprise tax bill.


Make your payments

These payments apply to those earning income not covered by pay-check withholding and who usually pay quarterly payments based on estimated taxes. This will help avoid penalties related to underpayment.


Assess itemized deductions

For 2019, the standard deduction is $12,200 for single taxpayers and $24,400 for married couples filing jointly. The most common deductions are for state and local taxes (SALT), charitable donations, and mortgage interest. Now that SALT deductions have been limited to $10,000 per return for both single and married filers, single filers may be able to more frequently take advantage of itemizing – so don’t automatically take the standard deduction!


Strategize charitable donations

If appropriate, consider bunching charitable donations. Bunching involves combining multiple years of what may be considered normal annual charitable contributions into a single year. In combination with other itemized deductions that cannot be done in this manner, including mortgage interest, real and personal property taxes, state and local income taxes, and sales tax, bunching increases the likelihood of exceeding the standard deduction and creating additional tax savings. A Donor Advised Fund is a tool that is very useful in facilitating this strategy. Also, be mindful of strategizing donations from a retirement account. For donors who are over the age of 70 ½ and taking required minimum distributions, the RMD (or any part of it), can be used to donate directly to charities – the qualified charitable distribution, QCD, can be applied towards the amount that one is required to take, and provide tax benefits, such as reducing AGI (Adjusted Gross Income), which can in turn help lower Medicare premiums.


Donate low-basis stock instead of cash

In addition to getting the charitable deduction, this allows the individual to pass along the low-basis stock to the charity and avoid the capital gain associated with selling it.


Check deadlines for retirement-savings contributions

For traditional and Roth IRAs the deadline to open and fund the account is April 15, 2020. With SEP-IRAs, retirement accounts for self-employed individuals, the deadline can often be longer, with account set up and funding allowable through October 15, 2020 if an extension is filed. If you have a 401(k) through your employer, if possible, make sure you are contributing as close to your limit as possible, and if you have not done so yet, there is still time between now and the end of the year (if you can manage the reduction to your cash flow) to adjust contribution amounts to add as much as possible. Also consider funding the post-tax Roth 401(k) as an option, it allows for tax-free growth and you aren’t required to take distributions at retirement.


Tax loss harvesting

Taxpayers are allowed to sell investments that have a loss to offset those that had capital gains that were realized plus an additional $3,000 of ordinary income. Now is a great time to review your portfolio with your investment advisor to see if there are any positions that it makes sense selling for this purpose.


Roth IRA conversion

While a Roth IRA conversion will not save you taxes now, it will when you start taking funds from your account for retirement, as withdrawals are tax-free. This allows you to convert all or part of the money in a traditional IRA to a Roth IRA. Even if your income exceeds the limit to be able to contribute to a Roth IRA, you can still convert the contribution – which is called a “backdoor Roth IRA”. While you will owe current taxes on the funds converted, you will not have to pay taxes (like you would with a traditional IRA) when funds are distributed from the account in the future.


Make 529 college-savings contributions

There is no Federal deduction for contributions made to a 529 plan, and only some states allow for a deduction. However, contributions grow tax-free and withdrawals used for college-related expenses can also be taken tax-free. Contributions for 2019 must be made prior to the end of the year.


Remember extenders

There are quite a few provisions and breaks that have expired and not been extended, such as breaks for tuition and forgiven mortgage debt. Please make sure you discuss this with your tax advisor so you are aware of them.


The year is quickly coming to a close but there’s still time to chat with your financial advisor and your accountant before the end of the year so if you feel those meetings would be helpful now is the time to make the call!


Contact the Peninsula Wealth Team for a free consultation to begin building a financial and investment plan customized to your goals.