Where did 2019 go? It feels like we just finished filling out our 2018 tax returns and now it’s almost time to do the same for 2019. Are you ready? Is your business? To help you begin planning for tax season, we have compiled comprehensive documents for individuals and businesses:
Year-End Tax Planning for Businesses
Year-End Tax Planning for Individuals
Below are 5 quick tips to help you get started:
1. Evaluate Your 2019 and 2020 Tax Brackets
Decide what 2019 tax bracket you fall within and what bracket you think you’ll be in for 2020. If you feel you will be in a higher tax bracket in 2020, you may want to consider opportunities to accelerate some income this year. For example, accelerating some income could mean the opportunity to take a company bonus in 2019 versus 2020. The same goes for deductions – the standard deduction has increased significantly and due to new tax laws, fewer people are itemizing deductions. Therefore, if you are up against that standard deduction limit, you could consider combining your charitable contributions. With this option, you would give your 2019 and your 2020 donations to your favorite charity now, that way you can capitalize on getting over the standard deduction limit and be able to deduct those charitable contributions this year.
2. Qualified Charitable Distribution
A Qualified Charitable Distribution (QCD) is a distribution from an IRA made directly to an eligible charity, bypassing the owner of the account. Owners of individual retirement accounts who are at least age 70.5 years of age can contribute some or all of their IRA’s to charity. The benefit of doing this is that you would not be taxed because it is not included in your adjusted gross income. If it’s not in your gross income, you are going to pay less tax just by doing the QCD.
3. Capital Gains and Losses
The tax code allows you to apply up to $3,000 a year in capital losses to reduce ordinary income, which is taxed at the same rate as short-term capital gains. If you still have capital losses after applying them first to capital gains and then to ordinary income, you can carry them forward for use in future years. However, if you have 10,000 in net losses, you’ll only get a deduction for $3,000. If you are able, sell some stocks that have appreciated in value. If you have losses, you will want to get that number as close to $3,000 as you can. Please remember to always check with your financial advisor before moving forward.
4. Withholding
If you owe the IRS more than $1,000 at the end of the year, you will get penalized. However, there are ways to avoid that. Your first option is paying either 100% or 110% of your prior year taxes, depending on your tax bracket. You don’t want to be in a penalty situation if you can avoid it. Another option is pay 90% of your current year taxes. It’s very important to have continuous conversations with your tax preparers to avoid these situations. Throughout the entire year, we at MahoneySabol check in with clients to avoid this situation where they would have to pay a penalty. Having enough tax withheld or making quarterly estimated tax payments throughout the year can help you avoid problems at tax time.
5. Gifts
One of the most common questions we receive during the course of the year is regarding giving gifts to either family members or to friends. These aren’t charitable gifts but rather personal gifts to people you know. In 2019, the limit is $15,000 per year, per person. If you keep it to $15,000 or less, there is no paperwork to fill out, and the gifts are not taxable to the recipient. If you are the one giving the gift, and it is more than $15,000, you will need to file a gift tax return. In order to keep it tax free, gifts must be under $15,000, for any one, at any age.
