No matter your income situation, here are several year-end tax tips you can still take advantage of to help minimize what you owe and maximize your refund. But, you must act before December 31, for these to work.
- Defer income, especially a bonus, if you’re having a stellar year. Why? Because income is taxed in the year in which it’s received. So, rather than dispensing the income in December, do it in January.
- If you’re a consultant, self-employed, or are freelancer delay invoices until mid or late December to help reduce the chance payments will be received before year-end.
In either case, keep in mind if you’re shifting income to the new year, could that bump put you in a new tax bracket causing you to pay a bigger tax bill in 2020? If yes, then do not do it.
Last-Minute Deductions for Everyone
- Accelerate deductions, such as charitable contributions, including stock or property.
- If you pay estimated income taxes, pay the January installment in December if your combined real estate taxes and state income taxes are below the $10,000 limit.
- If itemizing, consider medical expenses and property tax bill payments in December, unless you’re subject to Alternative Minimum Tax (AMT).
- Contribute the maximum amount to your 401(k) ($19,000 in 2019) or IRA accounts ($6,000 in 2019, plus an additional $1,000 if you’re over 50).
- Ask your employer if they have adopted a grace period on flexible spending accounts, which allows you to spend money in your account as late as March 15, 2020. If not, you’ll lose the funds left in the account at year-end. To offset that loss, buy supplies at the pharmacy, visit a doctor, and/or buy glasses or other medical equipment before year-end.
- If you’re planning to give a child stock to sell for college, be aware that if the gain is too large and the child’s income is more than $2,200, you could be required to pay tax at the same rate as trusts and estate.
- If you are considering selling stocks and mutual funds at a loss, called loss harvesting, you can use those losses to offset tax gains realized during the year dollar for dollar. Plus, if losses are more than gains, up to $3,000, it may be used to diffuse other income. Additionally, if you have more than $3,000 in excess loss, it may be carried to the next year.
- If you turned 70-1/2 in 2019, you’ll be required to take regular minimum distributions from a traditional IRA account by April 1, 2020. When making withdrawals, request the custodian withhold tax from the payment, which is voluntary so you must tell them. Doing so prevents you from making quarterly estimated tax payments.
With year-end closing in, it’s your last chance to make any final deductions, contributions, and donations. If you have any questions about including any of these items in your tax return, give me a call.