Couple Sitting in Home with Financial Advisor

End-of-year deadlines are looming. Have you done everything you can to optimize your saving, giving, and tax strategies?

Tax strategies

Strategies for Saving, Giving, and Managing Your Taxes Before Year-End

  • Jenna Faust
  • 12/4/2019

In the midst of the busy holiday season, it can be difficult to make time for financial matters. However, this is a critical time to evaluate your financial plan since there are a number of year-end strategies that have firm deadlines — typically December 31.

Review these strategies with your financial advisor to take full advantage of the opportunities available to you this year.

Manage your income taxes:

Reduce capital gains taxes

If you sold an asset (security, business, property, etc.) for a gain in 2019, you may be able to offset or defer those gains and ultimately reduce your tax liability.

    Look up your Business and Individual Tax Rates for 2019.
  • Tax loss harvesting — Review your portfolio for opportunities to harvest any capital losses. You can use realized capital losses to offset your gains for the year, thereby reducing your tax liability. If your net losses exceed your gains, you can use up to $3,000 per year to offset ordinary income and then carry the remainder into future years.
  • Qualified Opportunity Zones (QOZ) — The Tax Cut and Jobs Act created Opportunity Zones (OZ) to encourage investing in specified economically distressed areas in exchange for capital gain tax benefits. In order to realize the full benefits of the OZ program, you must invest by the initial December 31, 2019, deadline.

Consider converting a traditional IRA or 401(k) to a Roth IRA or 401(k)

The deadline to complete Roth conversions for the year is December 31. You pay tax on the converted amount today, but then the money grows tax-free providing flexibility in retirement or to your heirs.

Take required minimum distributions (RMDs)

If you’re 70.5 years or older, the IRS requires you to take annual RMDs from certain retirement accounts. If these distributions are not taken by December 31, you could face significant penalties. If you turned 70.5 this year, you have until April 1, 2020, to take your first RMD. However, depending on your tax situation, you may not want to wait.

Maximize your savings:

Max out your retirement plan contributions

You can contribute up to $19,000 to your company 401(k) or 403(b) plan with a $6,000 catch-up for those 50 and older in 2019. This is an easy way to boost your retirement savings and potentially minimize your tax liability if you contribute on a pre-tax basis.

Fund a health savings account (HSA)

For 2019, individuals in high-deductible health insurance plans can put away as much as $3,500 each year pre-tax. For families, the maximum is $7,000, and those age 55 and older can contribute an additional $1,000. These dollars go in tax-free and come out tax-free if used for qualified expenses. It’s a win-win!

Spend flex plan dollars

Check your flexible spending account (FSA) balance and be sure to utilize any funds you have left for eligible health and medical expenses. In most instances, if you don’t use the money by December 31 the balance is forfeited. Some plans offer extended grace periods, so check with your employer if you’re unsure.

Achieve your giving goals:

Complete your planned charitable donations

Keep track of your donations to charities in all forms (cash, stock, real property, or other assets), and consider strategies that may qualify you for larger tax deductions.

  • Donate appreciated stock — If you itemize your taxes, donating to charities from a taxable account can help reduce your tax liability. This is especially true if you can contribute appreciated securities you have held in your account for at least a year. Doing so entitles you to a tax deduction (assuming you qualify) and allows you to help eliminate the capital gains tax.
  • Establish a donor-advised fund (DAF) — A DAF is a flexible giving account that allows you to make a charitable contribution and receive an immediate tax deduction, and then distribute funds to your desired qualified charities over time. Charitable bunching or deduction stacking is a strategy where charitable contributions are made every other year to maximize itemized deductions. Combined with a DAF, you can benefit from reduced taxes and the option to distribute contributions over time.
  • Consider a qualified charitable distribution (QCD) — QCD’s can be a great strategy for charitably inclined individuals age over 70.5 and over to reduce taxable income using IRA dollars. By completing a direct transfer from your IRA to a qualified charity, you can satisfy your RMDs without paying ordinary income taxes. The maximum dollar amount to qualify for QCDs is $100,000.

Give a gift to your loved ones

The annual gift tax exclusion is $15,000 for the 2019 tax year. This is the amount that you can give as a gift to one person, in any given year, without having to pay any gift tax. If you’re married, you can combine your exclusions to give a total of $30,000 per person, per year.

Contribute to a 529 plan

529 plans offer attractive tax benefits based on contributions to state-sponsored college education accounts. These contributions must usually be made before the end of the year in order to take advantage of any available state income tax benefits or to be eligible for the annual federal gift tax exclusion mentioned above. If you haven’t already opened an account for your child or grandchild, there may still be time to do so before the contribution deadline.

How we can help

As you evaluate how these opportunities may fit into your financial plan, be sure to take some time to celebrate the progress you’ve made toward achieving your financial and life goals. Personal finances can be complicated and time-consuming, especially in the post-tax reform environment. CLA’s wealth advisory professionals are ready to help you make the choices based on your goals and circumstances.