Guide to End-of-Year Tax Planning | Personal Capital
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Guide to End-of-Year Tax Planning

As we near the end of the tax year, here are 8 end-of-year tax planning tips.

It’s coming up toward the end of the year, and amidst planning for the holidays and gearing up for those New Year’s resolutions, there’s another subject that should be top of mind for you: taxes.

Here are eight planning tips when it comes to your year-end taxes and how to make them work to your advantage.

Standard Deductions Increase – 2019

One key thing to keep in mind as you review these end-of-year tax tips is that the standard deduction increased in 2019.

  • Single taxpayer – $12,200
  • Head of Household – $18,350
  • Married filing jointly – $24,400

8 End-of-Year Tax Planning Tips

1. Donate Long-Term Appreciated Securities

GIFTING AND DONATING: The end of the year usually is a popular time for folks to open their hearts and their wallets. While most of us don’t give just for the tax benefits, there are some strategies you can take advantage of that will maximize the impact of your gift, while also potentially delivering some tax savings benefits to you and your family.

As we near the giving season, one way you can take advantage of an often overlooked charitable-giving tax break is by donating appreciated assets instead of giving cash or writing checks to charities.

Tax reform may change the number of households that will utilize itemized deductions like the charitable contribution deduction (since the standard deduction has doubled). Still, many households will continue to itemize their deductions, which allows them to take advantage of this benefit. If you’re one of these households and you plan on donating to a 501(c)(3) nonprofit organization, it may make sense to gift long-term appreciated securities, like real estate, common stock, bonds, mutual funds held on a public exchange, or other securities.

Why does this benefit both you and the charity to which you give? First of all, the qualified recipient of your gift can receive the full benefit of the appreciated asset’s current market value. And for your own itemized deductions, you can usually deduct the full fair market value of those appreciated securities you’ve held for more than a year.

Another benefit of donating appreciated securities held long term is that you avoid paying capital gains tax on the appreciation. (Note there are very different rules for privately held securities. Speak to a financial advisor to learn more). You can donate up to 50% of your adjusted gross income in appreciated assets to “public” charities before you are capped for the year. If you donate to a “private foundation,” or other charitable groups, then you can give up to 30% of your adjusted gross income.

KEEP IN MIND…Don’t contribute securities held less than one year. If you do, your deduction is the lower of market value or the cost basis. And you should likely never contribute securities at a loss; instead, sell them and take the capital loss, and then donate the proceeds. Learn more about donating appreciated assets here.

2. Use Your IRA To Make Qualified Charitable Distributions (QCD)

When you reach the age of 70 ½ and you have a traditional IRA, the IRS generally requires you to take a required minimum distribution (RMD) from it, even if you don’t necessarily need the money. If you are taking an RMD from your IRA (not an inherited IRA), then there’s a unique giving opportunity that can maximize your impact of giving as well as give you a potential tax benefit.

You can use part of your RMD from your traditional IRA as a qualified charitable distribution to a qualified charity. If you execute a QCD, these IRA distributions are not considered taxable income to you (although there is no charitable itemized tax deduction for a QCD). You don’t have to pay income tax on the distributions, but the donation helps satisfy the requirement for your minimum distribution. You must directly transfer your contribution from your IRA to the charity.

With the new standard deduction, this could be another way to reduce your taxable income in 2019 if you no longer can itemize your deductions.

3. Donate Tangible Property

While giving is good for the heart, it can also be good for your financial picture and your tax bill. While giving is a great idea throughout the year, it tends to be toward the end of the year many of us consider donating. This includes giving tangible personal property, i.e., items that are in “good” used condition, such as clothing, household goods, electronics, furniture, and more.

donate tangible property end of year tax tips

When you donate, be sure to get a receipt when you drop off your property (or have them pick it up) and be diligent about writing down what you donated. Determine a reasonable “thrift shop” value for those goods and claim that amount as a charitable contribution. If the aggregate of the goods donated in a single year of similar items (such as clothing and household goods) exceeds $5,000, regardless of when they are contributed, you will need to have a qualified appraiser prepare a professional appraisal of all the items you donated. This assumes the you can itemize your deductions in 2019 as your itemized deductions, including charitable contributions that exceed the standard deduction.

4. Gift To Your Loved Ones

The gift tax exclusion this year remains unchanged from 2018, so you can gift up to $15,000 to as many people as you wish per year, free of gift taxes. Your spouse can also use this exclusion which means you can essentially give up to $30,000 per recipient.

gifting loved ones end of year tax tips

At the federal level, estate taxes can be intertwined with the gift tax (the gift tax applies to the value of assets transferred to others during your lifetime). Typically, if you give more than $15,000 (2019), then this begins to count against your lifetime estate tax exemption of nearly $11.4 million. These annual $15,000 gifts, however, don’t count against the lifetime gift-tax exclusion for your potential heirs, so the annual exclusion associated with the gift tax can reduce the overall value of your estate during your lifetime, without impacting your lifetime estate tax exemption. This can be complex, so you can consult a professional to learn more.

5. Reap the Benefits of Tax-Loss Harvesting

Did you know you can possibly turn your losses into a benefit to you? Tax-loss harvesting is a strategy in which certain investment assets are sold at a loss to reduce your realized capital gains during the year, thereby reducing your tax liability. You can also use tax-loss harvesting to offset up to $3,000 in non-investment income (e.g., wages, pension income, Social Security income, etc.).

Just be careful of the Wash Sale Rule that states a loss will not be permitted if the same (or substantially identical) security is purchased within 30 days before or after the transaction that resulted in the loss.

6. Fully Fund Employer-Sponsored Retirement Plans

If you are not maxed out on your 2019 plan contributions (401k, 403b or 457 plans), the deadline is December 31, 2019. The 2019 limits are $19,000 (plus an additional $6,000 if you are over 50 years of age.) Keep in mind that contributions related to self-employed retirement plans can be subject to different deadlines.

Why do you want to max out your plan contributions? If your employer offers a 401k and you are not utilizing it, you are likely leaving money on the table – especially if your employer matches your contributions. And the earlier you start doing this, the earlier you can reap the benefits of tax breaks and compounding interest over time.
Here are some tips to help you max out your 401k.

7. See If a Roth Conversion Makes Sense For You

One of the most common tax-advantaged retirement accounts is the Roth IRA. These can be a great way to save if your tax rate in retirement will be similar or higher than your current tax rate. You don’t get a tax deduction when you contribute, but your withdrawals in retirement are tax free (though you should keep in mind that if you’re already in a high federal tax bracket, you probably can’t – and probably shouldn’t – contribute to a Roth).

Because of these potential tax advantages, a common tax management question that can arise is: should you convert a traditional IRA to a Roth IRA? If you anticipate being in a higher tax bracket in retirement, a Roth conversion may be something to investigate further. A side note about the terminology that can be confusing: a “contribution” and a “conversion” are completely different in the world of retirement accounts. For high income earners, contributions to a Roth are limited, but most taxpayers can convert assets to a Roth IRA.

Note that on the surface, a Roth might appear superior since its tax-exempt nature amplifies compounding investment returns over time. It’s not quite this simple, however – several criteria must be met in order for a Roth conversion to make sense.

8. Don’t Forget About Required Minimum Distributions (RMD)

You generally must start taking withdrawals (required minimum distributions) from your IRA, SEP IRA, Simple IRA, or retirement plan account when you reach age 70 ½. If you have a retirement plan account like a 401k, you can postpone taking distributions if you are still working.

So when exactly do you need to take your first RMD? As mentioned, you must take your first RMD for the year in which you turn age 70 ½ ; however the first payment can be delayed until April 1 of the year following the year in which you turn that age. If you do end up delaying the first distribution, though, you’ll have to take the subsequent distribution in the same year, which could be tax adverse.

Read More: When is the Best Time of Year to Retire?

RMDs and IRAs

There are a few different rules for IRAs. If your plan is an IRA, you must start taking RMDs when you turn 70 ½. Your RMD is the minimum amount you must withdraw from your account each year, and you will need to calculate the RMD separately for each IRA you own. You can withdraw the total amount from one or more IRAs, however. Similarly, if you own a 403b contract, you must calculate your RMD separately for each 403b contract that you own, but you can take the total amount from one or more of your 403b contracts.

Note that RMDs required from other types of retirement accounts, such as 401k and 457b plans must be taken separately from each of those plan accounts.

Do you have additional questions about tax planning? Contact a financial advisor.

For more information, contact a financial advisor

Disclaimer: This report is distributed for informational purposes only, is proprietary and confidential to Personal Capital. Any reference to the advisory services refers to Personal Capital Advisors Corporation. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC. Past performance is no guarantee of future results. It’s not possible to invest directly in an index or strategy without incurring fees and expenses. All investments involve risk of loss. This report is not, and should not be regarded as investment advice or as a recommendation regarding any particular investment strategy or course of action. All tax insight provided represents a courtesy extended to you for educational purposes, and you should not rely on this information as the primary basis of your tax planning decisions. We are not tax professionals. You should consult a qualified legal or tax professional, such as a tax attorney or CPA, regarding your specific situation.

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

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