As the year end approaches and as people are still adjusting to the Tax Cuts and Jobs Act (TCJA), we often get asked for advice in planning for potential financial actions that would reduce taxes owed for the full year. The following provides for some financial planning tips to consider that may help to lower your 2019 tax bill. Always consult with a CPA for tax advice and planning.
Maximize your pre-tax contributions to tax-deferred retirement accounts. Taxable income is reduced by qualified contributions to an employer 401(k) or other qualified retirement plan. Additionally, the contributions and earnings in these plans grow tax deferred and most employers often match a portion of the contributions. Limits on the employee contributions are $19,000 for 2019 and $25,000 if you are age 50 or over. At the very least, your contributions should be an amount that will maximize the amount that is matched by your employer.
In addition, consider making an IRA contribution. You have until April 15, 2020 to make IRA contributions for 2019. Making deductible contributions reduces your taxable income for the year. You can contribute a maximum of $6,000 to an IRA for 2019, plus an extra $1,000 if you are 50 or older. The IRS has certain income limits for contributions if you or your spouse is a participant in a company sponsored plan, so please consider consulting a financial advisor.
Contribute to a 529 college savings plan. While contributing to a 529 plan for a child or grandchild before year-end won’t reduce your federal tax bill, it could lower your state tax tab. The State of Georgia allows deductions for Georgia income tax purposes up to $4,000 per year per Beneficiary for those filing a joint return and up to $2,000 per year per Beneficiary for all others. Qualified higher education withdrawals are not subject to income tax. In addition, TCJA allows up to $10,000 annually to be used toward K-12 school tuition per student from all 529 plans.
Maximize your contributions to a Health Savings Account. An HSA is a government-regulated savings account that lets you set aside pretax income to cover health care costs not paid by your insurance. You must be a participant in a High Deductible Healthcare Plan (HDHP). HSA contributions also grow tax free as long as they are used for qualifying healthcare expenses. HSA contribution limits for 2019 are $3,500 for individuals and $7,000 for families. There is also a catch-up contribution for people over age 55 that is $1,000.
Review Potential Capital Gains Distributions. Mutual funds are required to pay out to their shareholders any gains realized from the sale of stocks or bonds during the year. If you own the fund in a taxable account, you must pay taxes on these distributions when you file your tax return, even if you reinvest them. Review your portfolio to see if you have any mutual funds, stocks or bonds that have declined in value since you purchased them. Selling them before year-end will provide losses to offset your gains. Mutual funds typically publish an estimate of their capital gains distributions in November or December, along with the date of the distribution. Be careful about buying a fund before year end. If the fund plans to make a capital gains distribution, postpone your purchase until after the distribution date. Otherwise, you’ll have to pay taxes on gains that are earned before your purchase of the fund.
Tax Loss Harvesting. Consider selling investments that may produce a loss to offset sold securities that resulted in gains. Taxpayers can deduct up to $3,000 of their excess losses, which reduces overall income. Be cautious of the “Wash Sale” rules which disallow losses in securities that are purchased within (before and after) 30 days of the sale.
Ensure you take your IRA Required Minimum Distribution. Failing to take your RMD if you are over 70½ triggers a major IRS penalty which is a 50% excise tax on the amount you should have withdrawn. The required minimum distributions apply to traditional IRAs and not Roth IRAs. If you make charitable donations, consider donating directly to the charity from your IRA RMD which keeps the amount from being included in your adjusted gross income even if you are not itemizing deductions.
GENCapital provides objective, transparent, and knowledgeable financial advice because it’s the right thing to do. GENCapital is a Fiduciary which means we are obligated to always put our clients’ interests ahead of our own. We are advice-based, client-centric advisors who prefer to sit on the same side of the table with you as a valued customer. With a concierge approach, extensive resources and generations of experience, we go beyond traditional investment strategies and partner with you to deliver a plan customized to your goals. Based in Atlanta, Georgia, our team of qualified and reliable professionals is committed to developing long-term relationships and building your wealth for generations.
GENCapital is a wealth management firm offering investment management, financial planning and business advisory services for individuals, families and organizations. With a concierge approach, extensive resources and generations of experience, we go beyond traditional investment strategies and partner with you to deliver a plan customized to your goals. Based in Atlanta, Georgia, our team of qualified and reliable professionals is committed to developing long-term relationships and building your wealth for generations.
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