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Year End Tax Planning

November 2019

By: Brian A. Balenson

With less than two months before 2019 comes to a close, it’s time to review your year-end tax plans.  Here are some tax planning strategies to consider to reduce your tax bill:

  1. Accelerate Deductions:  If you itemize deductions, you have some flexibility and can shift some to 2019, rather than 2020.  For instance, if you make the January 2020 mortgage payment on your house before the end of 2019, you can deduct the interest portion in 2019.  You can also make charitable donations planned for 2020 in 2019.
  2. Make Charitable Gifts:  If you itemize, contribute assets that have appreciated in value, such as stocks and mutual funds.  In most cases, provided you owned the asset for more than a year, you can deduct the full value of what you contribute.  Neither you nor the charitable organization pay tax on the appreciation.
  3. Annual Gift Tax Exclusion:  You can give up to $15,000 to a person during 2019 without paying gift tax or using any of your lifetime gift tax exemption.  Your spouse can also give $15,000 to the same recipient in 2019.  That’s a $30,000 tax free gift.  If making the gift by check, the recipient must deposit it before December 31 for it to count as a 2019 gift for gift tax purposes.  Annual gifts to one recipient over $15,000 will trigger the need to file a gift tax return for the year.  But, no gift tax will be owed unless your total lifetime gifts exceed $11,400,000.
  4. 529 Plans:  Contribute to a 529 plan to help your children or grandchildren with their education.  You can contribute up to $75,000 in a single year per beneficiary ($150,000 if your spouse also contributes that amount to the same beneficiary).  If you put in the maximum amount, you are treated as gifting $15,000 (or $30,000 if your spouse also contributes) to that beneficiary in 2019 and in each of the next four years.  Contributions are excluded from your estate so long as you live through the fifth year.
  5. Your Investment Portfolio:   Consider selling poor performers in your investment portfolio.  Capital losses that you incur can offset your capital gains plus another $3,000 of other income.  Any excess losses can be carried over to the next tax year and can then help offset future capital gains.  If you have a capital loss carryforward, review your portfolio for gains as your gains up to the carryover amount will not be taxed at all.
  6. Individual Retirement Accounts:     Remember to take your required minimum distribution from your traditional IRAs.  People age 70½ and older must take withdrawals by year-end or pay a penalty equal to 50% of the shortfall.  If you turned 70½ in 2019, you can delay taking this year’s minimum required distribution until April 1, 2020.
  7. Charitable Donations Made Directly from your Traditional IRA:   People aged 70½ and older can transfer up to $100,000 from IRAs directly to charity.  If married, your spouse can do the same.  Such distributions directly to a charity count as required minimum distributions, but they are not taxable.  Note though, you can’t deduct the contribution as a charitable gift.
  8. Year-End Bonus:    Consider contributing all or part of your year-end bonus to your 401(k) plan or other workplace retirement plan if you haven’t already put in the maximum.  The 401(k) contribution limit for 2019 is $19,000 or $25,000 if you are age 50 or older.  Contributions are pretax, meaning they are not subject to income tax or payroll taxes.
  9. Review Your Retirement Plan Beneficiaries:  If you haven’t done so recently, you can avoid unintended consequences by updating beneficiary designations on your retirement plans. 
  10. Don’t Overlook Estate Planning:  Thanks to Congress, the exemption for federal estate and gift tax is a historically huge $11,400,000 ($22,800,000 per couple).   Likewise, Maryland’s exemption from estate tax is historically huge at $5,000,000 ($10,000,000 per couple).  Even though these large exemptions may mean you are not currently exposed to federal or Maryland estate tax, your estate plan may need updating to reflect the current tax rules and changes in your personal life.

If you have any questions about this subject or other estate planning issues, contact Brian Balenson.

This alert has been prepared by Tydings for informational purposes only and does not constitute legal advice.

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