Year-End Tax Planning for 2019
As 2019 comes to a close, there are several year-end tax tips businesses and individuals should consider before the calendar turns. Spending a little time tax planning with a CPA to discover the best fit for your needs could result in opportunities to create tax savings for 2019.
A general rule for tax planning at this time of the year is look at what tax bracket you will be in for this year and estimate the next year to see if it make sense in trying to time your income and deductions to maximize the most effective tax rate. If you are in a higher tax bracket this year than you expect to be in next year, you should look for opportunities to defer income to the following year and accelerate expenses and deductions into the current year. The following examples show strategies that may be effective for you to reduce your tax bill:
BUSINESSES
- Look for capital expenditures you’re planning to make in 2020 to see if you could benefit by moving them into 2019. Capital expenditures are generally defined as money spent on acquiring or maintaining fixed assets like buildings, and equipment. Taxpayer-friendly rules for deducting capital assets are currently in place that allow accelerated deductions for the costs incurred in the current year instead of spreading the deduction across multiple years. This could significantly reduce taxable income for businesses by purchasing them before year end.
- Considering your company’s retirement plan options. Employers can reward their employees by finding additional ways to fund employee retirement accounts. By making specific employer contributions to retirement plans, like employer matching contributions and profit-sharing contributions, you can create deductions to lower taxable income. Additionally, it is a benefit to your employees that is not currently taxable to them.
- Look for credits or incentives you may qualify for based on your business activities. Tax credits are given to businesses as incentives for certain kinds of activities. Tax credits are a dollar for dollar reduction against taxes. These credits and incentives can range from offering employees family leave, going green, research and development, hiring employees in certain categories (Work Opportunity), among others.
INDIVIDUALS
- Examine your portfolio to gains and losses. Through consistent rebalancing of your portfolio, you can ensure it remains diversified and proportionally allocated. If you have experienced significant gains during the year, harvesting investment losses before the year end can offset the tax you would pay on the gains.
- Donate to a qualified charities or donor advised funds. Giving money to non-profit organizations reduces taxes when you have enough deductions to itemize your deductions on your tax return. The amount you can deduct has increased to 60 percent of adjusted gross income. Donations can come in different forms. If you hold appreciated stock, consider donating the securities to receive the tax deduction for the fair market value instead of your cost value.
- Determine itemizing deduction strategies on a multi-year basis. Higher standard deduction limits create an opportunity to maximize deductions across years by “bunching” your itemized deductions for two years if you don’t have enough itemized deductions to exceed the standard deduction for the year. Paying for two years worth of itemized deductions in one year will help you exceed the standard deduction in one year for a bigger tax deduction. In the subsequent year, you would claim the standard deduction to maximize the tax benefit in that year.
If you haven’t begun your year-end tax planning, or even if you have, join our free webinar hosted by Squire CPAs, Brandon Allfrey, Greg Hyde, and Joe Hillstead, to learn more. It’s more important than ever to engage in tax planning before the year ends in order to improve and influence your income taxes for the better. In addition to the webinar, please contact one of our experienced tax professionals today to get the ball rolling.