As 2019 comes to an end, so does the window of opportunity to take advantage of certain tax and financial planning strategies. To help advisors and their clients be best positioned come Tax Day 2020, CPA financial planners with the American Institute of CPAs (AICPA)—the world’s largest member association representing the CPA profession—offer the following 2019 year-end tips. These 16 tips can help your clients improve their financial situations, support the lives they want to live and ensure their loved ones are provided for.
1. Prepay Taxes on a Residence Deadline: December 31, 2019
“In the past, prepaying real estate taxes could trigger the alternative minimum tax (AMT), but with a generous AMT exemption and a cap on deducting state and local taxes, AMT concerns are minimal. By prepaying real estate taxes in 2019 that are otherwise due before the end of 2020, taxpayers can get a discount on the 2019 taxes.” – Sidney Kess, CPA member of the AICPA Personal Financial Planning (PFP) Executive Committee
Deadline: December 31, 2019 or sooner
“Review your investment portfolio before the end of the year to see what Long Term Capital Gain Dividend distributions have already hit the account and check to see if there will be any others to come before year end. If you don’t proactively consider these capital gains, you may be in for a big surprise this upcoming tax filing season. One way to protect your gains is by selling selected losing investments in your portfolio now. This is known as Tax Loss Harvesting and will help to lower your potential tax hit.” – Michael Eisenberg, CPA/PFS member of the AICPA Financial Literacy Commission
3. If You Go Green, Don’t Forget to Save Green
Deadline: December 31, 2019
“Taxpayers who upgraded their homes to make use of solar or certain other renewable energy in 2019 may be eligible for a tax credit of 30 percent to offset some of the costs. For those who are into renewable energy but haven’t had the work done yet, it may be too late to book an installer for 2019. Be aware that the solar credit reduces from 30 percent to 26 percent from 2019 to 2020. Though less, 26 percent is still a good rate. If you are going to miss the 2019 deadline, act now and reduce your 2020 taxes!” – Mackey McNeill, CPA/PFS member of the AICPA Consumer Financial Education Advocates
4. Pull the Trigger on Home Business Purchases
Deadline: December 31, 2019
“Many taxpayers have side gigs these days and can expect to pay both income and self-employment tax on those net profits in April. So, if you have expenses related to your business that need to be paid, do it before year-end to offset any current taxable income. Driving for a rideshare company? Maybe you have been eyeing some slick seat covers or gadgets, now is the time to invest.” – Cari Weston, CPA, CGMA Director of Tax Practice & Ethics at the AICPA
5. Check Your Withholdings
Deadline: Make it routine.
“The Tax Cuts & Jobs Act of 2017, and the resulting changes in the withholding tables in 2018, surprised many Americans on Tax Day last year because they had not withheld enough from their paychecks during 2018. It is important to check your tax withholdings regularly. If you feel more or less tax should be withheld, contact the Payroll/Human Resource Office at your employer and complete a new W-4 Employee’s Withholding Allowance Certificate. You can use line 6 of the W-4 to have extra federal tax withheld from each paycheck prior to the end of the year. Just remember to complete another form January 1, 2020 to remove the adjustment if you don’t want it to continue!” – Paula McMillan, CPA/PFS member of the AICPA Personal Financial Specialist (PFS) Credential Committee
6. Make 529 Education-Savings Contributions
Deadline: Check with your state. Most states it is December 31, 2019, although for a few it is April 15, 2020
“With more options available for using 529 plans, taxpayers could consider contributing additional funds to existing accounts (while keeping in mind gift tax implications) or setting up new 529 plans. Although contributions are not eligible for a federal income tax deduction, many states offer state income tax deductions. Contributions to these accounts can grow tax-free, and withdrawals used to pay eligible expenses are also tax-free.” – Dave Cherill, CPA member of the AICPA PFP Executive Committee
7. Bunch Charitable Contributions
Deadline: December 31, 2019
“For taxpayers who are planning to utilize the standard deduction instead of itemizing, consider bunching your charitable contributions into alternate years if it will allow you to take the standard deduction one year and itemize an amount that exceeds the standard deduction the next. If you do not want to give the money to charity all at once, contribute to a donor advised fund and then make the distributions to charity over time.” – Lisa Featherngill, CPA/PFS member of the AICPA PFP Executive Committee
8. Donate Required Minimum Distributions Strategically
Deadline: December 31, 2019
“For taxpayers age 70 1/2 or older who need to withdraw their required minimum distribution (RMD) from their IRA, they may consider utilizing a Qualified Charitable Distribution (QCD) of up to $100,000 to one or more qualified charitable organizations. This distribution counts toward satisfying their RMD and will not be taxable to the taxpayer. This strategy lowers a taxpayer’s adjusted gross income (AGI) which may allow for larger deductions that are subject to AGI limitations, such as medical deductions and charitable contributions. Also, this allows for a reduced amount of income in computing the amount of Medicare Part B premiums.” – Tom Pope, CPA member of the AICPA PFS Credential Committee
9. Max Out That Health Savings Account (HSA)
Deadline: April 15, 2020
“One way to lower your taxes is to put the maximum allowed in your HSA (generally $3,500 for individual coverage or $7,000 for family) even if you haven’t gotten there yet through your payroll deductions. You actually have until the April tax filing deadline to make a direct deposit to your HSA from your checking account, then deducting the deposit on your tax return. Remember that HSA dollars carry over indefinitely and are yours even if you switch jobs or retire, so if you have the funds, make the most of this tax savings opportunity to also save for future healthcare costs.” – Kelley Long, CPA/PFS member of the AICPA Consumer Financial Education Advocates
10. Maximize Employer 401(k) Match Opportunities
Deadline: Deferred from last paycheck or December 31, 2019
“If your employer offers a 401(k) match, whenever possible, everyone should find out what the limit is, then contribute at least the amount required to get the maximum match. The result is that you will have free pre-tax employer contributions at the end of the year. If you haven’t been contributing to your 401(k) plan at work at a level that gets you the maximum employer match, check on whether there may be a ‘catch up’ opportunity before year end. Leaving this benefit underutilized is the same as leaving money on the table.” – David Desmarais, CPA/PFS member of the AICPA PFP Executive Committee