Tax Tip #1
Long-term capital gains rates have been historically at their lowest level. You may want to consider selling appreciated securities that have been held for more than 12 months. The tax rate on long-term capital gains recognized in 2019 is only 15% for most taxpayers. Taxpayers in higher income levels may be hit with the maximum tax rate of 20% plus the 3.8% net investment income tax. Consult with your tax advisor.
Tax Tip #2
What should you do with losing investments you’d like to unload? Consider selling them and using the resulting capital losses to shelter capital gains, including high-taxed short-term gains, from other sales this year. Consult with your tax advisor.
Tax Tip #3
Additional benefit from Roth accounts: Income and gains that build up in a Roth IRA won’t be included in your adjusted gross income in future years. This may reduce your exposure to the 3.8% net investment income tax. Consult with your tax advisor.
Tax Tip #4
Donate appreciated securities, rather than cash to IRS-approved charities. The charity won’t owe tax on the gain – and you’ll get a deduction for the full fair market value of the donated securities if you’ve held them for more than a year. This tip can also benefit higher-income taxpayers by reducing their exposure to the 3.8% net investment income tax. Consult with your tax advisor.
Tax Tip #5
Find ways to defer income. If you expect to be in the same or lower tax bracket in 2020, it might be beneficial to defer some taxable income until next year. Consult with your tax advisor.
Tax Tip #6
Pay attention to fling status. If one spouse has substantial unreimbursed medical expenses, he or she may pay less tax by choosing a “married filing separately” status (assuming deductions are itemized by both spouses on their respective returns). That’s because for 2019, only medical expenses that exceed 10% of adjusted gross income are deductible. Consult with your tax advisor.
Tax Tip #7
Invest in a Qualified Small Business Corporation (QSBC). A QSBC is generally a domestic C corporation whose assets don’t exceed $50 million and 80% or more of the corporation’s assets must be used in the active conduct of a qualified business. The biggest benefit of owning QSBC stock is the ability to shelter 100% of the gain from a stock sale. Another benefit is the ability to roll over (defer) the gain on a stock sale to the extent you acquire replacement QSBC stock within 60 days of the original sale. Consult with your tax advisor.
Tax Tip #8
Invest in a Qualified Opportunity Fund (QOF). QOFs are entities that invest in specific low-income communities. Two major tax benefits of investing in qualified opportunity zones: ability to temporarily defer capital gain from the sale of property if such gain is reinvested in a QOF within 180 days and ability to permanently exclude from income post-acquisition capital gains on the disposition of those QOF investments if held for 10 years. Consult with your tax advisor.
Tax Tip #9
Set up a Qualified Tuition Plan (QTP). QTPs allow parents and grandparents to set up college savings accounts for children and grandchildren before they reach college age. QTPs qualify for favorable federal and often state tax benefits. Consult with your tax advisor.
Tax Tip #10
Maximize your qualified business income deduction. Business owners may now deduct up to 20% of their qualified business income form sole proprietorships and pass-through entities. The deduction is subject to various rules and limitations based on your taxable income, type of business operated, business’s W-2 wages and property. Consult with your tax advisor.
Tax Tip #11
Acquire Assets. Your business may be able to take advantage of generous Section 179 deduction rules. Under these rules, businesses can elect to write off the entire cost of qualifying property in the current year rather than recovering it through annual depreciation. Consult with your tax advisor.
Tax Tip #12
Buy that electric car this year. You can claim a federal income tax credit for buying a qualified new (not used) plug-in electric vehicle. The credit may be worth up to $7500. Check out what vehicles are eligible and the credit amounts. Consult with your tax advisor.
Tax Tip #13
Giving gifts to relatives. Instead of making cash gifts, consider giving your loved ones taxable investments that have appreciated in value. If your relatives are in lower federal tax brackets, they’ll pay lower tax rates than you’d pay if you sold the same shares. But consider the potential loss of a basis step-up upon your death and beware of the kiddie tax, which can potentially apply until the year your gift recipient turns 24. Consult with your tax advisor.
Tax Tip #14
Maximize deductible contributions to tax-favored retirement accounts. Contribute as much as is allowed (and you can afford) to 401(k) accounts, self-employed SEP accounts, self-employed SIMPLE IRAs and other tax-favored retirement accounts. Consult with your tax advisor.
Tax Tip #15
Consider investing in rental real estate and oil and gas properties. Rental real estate income can be offset by depreciation deductions. Rental real estate income is not subject to social security and Medicare taxes. Oil and gas income can be offset by deductions for intangible drilling costs and depletion. Consult with your tax advisor.
Tax Tip #16
Consider life insurance and tax-deferred annuity products as both can be used to invest on a tax-deferred basis. Life insurance death benefits are generally exempt from both federal income tax and the 3.8% net investment income tax. Earnings from life insurance contracts and tax-deferred annuities aren’t taxed until they are withdrawn. Consult with your tax advisor.
Tax Tip #17
Reduce taxable income from small businesses by deferring revenue and/or accelerate business expenses. If you’re a cash basis self-employed individual, you can take steps to postpone collections until 2020 and/or, conversely, accelerate deductions taken in 2019. You may want to delay billing a customer until January 2020 for work completed at end of 2019 and/or you might prepay deductible business expenses using a credit card. Consult with your tax advisor.
Tax Tip #18
Use your IRA to make charitable gifts. If you are over 70.5 years old, consider making gifts of up to $100,000 directly from your IRA to qualified charities. It can satisfy part or all of your annual required minimum distribution and create a charitable tax benefit if you are no longer able to itemize deductions. Consult with your tax advisor.
Tax Tip #19
Consider bunching your charitable contributions. If you are no longer eligible to itemize deductions, consider bunching your charitable contributions in a single tax year to create allowable deductible amounts. Consider creating a donor advised fund if you want to spread the receipt of your bunched contributions to your charitable causes over time. Consult your tax advisor.
Tax Tip #20
Consider the future tax landscape. With potentially significant tax changes that could result after next November’s elections, consider now what actions you should take for income, gift and estate planning purposes. Consult your tax advisor.