What can I do last minute to save taxes?
This is a question I hear repeatedly this time of year. I’ve had several people call and drop in the office asking about requirements and options to complete before year-end. Fortunately, the IRS allows us up until December 31st, and in some cases until October 2020, to initiate a transaction to save taxes on your 2019 tax return.
One of the most important things you can do for the future is to save for retirement. The most common option for most employees is their company 401(k) plan. Contributions to these plans reduce your W-2 wages. Therefore, you defer taxes on the contribution amount, but they must be deferred from pay before year-end. For those that don’t have a company 401(k), an IRA or SEP IRA could be a good option. The IRS is generous when it comes to IRAs, and they allow you to make the contributions after the year-end.
We received a call just today asking about harvesting losses. Many of you are probably asking what that is. In years where you have other capital gains, it might be a time to sell something that will result in a loss. You’ll then be able to net the existing gains with these harvested losses to have a smaller net gain to pay tax on.
I’m sure you’ve been receiving charitable mailings for the last several weeks. That’s because a significant amount of charities’ income is given around the holidays and before year-end. With the new standard deduction amount of $24,000 increased for inflation, charitable contributions have become a tax question mark for many people. However, if you still itemize, charitable contributions can be a significant avenue for tax savings.
At the end of every year we spend significant amounts of time helping our clients plan around and take their qualified retirement distributions. That would be distributions from 401Ks, IRAs, SEPs, etc. At 70 1/2, you are forced to start taking out income from these accounts, but should you start taking distributions earlier? This is an important tax planning conversation that we have with many clients from 59 ½ to 70, so we often have a decade to make good tax decisions before RMDs start.
Are you doing everything you can to save taxes for 2019? If not, let us know how we can assist. The same considerations will need to be made for 2020, so let’s get started early on those calculations.