Can you believe 2019 is winding down already? If you want to make the most of your taxes this year, here are three things you can do before the year ends (and one even after the year is over.)
Maximizing Retirement Contributions
One of the best things you can do to reduce your taxes is to contribute to a tax advantaged retirement plan. As the year comes to a close, make sure you’ve contributed as much as possible and make those final additions to minimize your taxable income.
401(k) – The annual limit for 401(k) plans is up just a bit from last year ($19,000) and you can make up to $6,000 in additional “catch up” contributions if you’ll be 50 or over by the last day of the year.
If your employer has any type of matching, it’s a no-brainer to contribute at least up to that matching limit. If you’re self-employed, you can contribute a higher amount to your 401(k), simulating both the employee and employer’s side of the contributions.
IRA – The Individual Retirement Account limit is up to $6,000 ($7,000 if over 50 years old) and the income limits for making deductible contributions were also increased this year. The deadline for contributing to your IRA during this tax year is later than other accounts, allowing you to contribute until the April 15th tax deadline and still claim it on your 2019 taxes.
HSA – A health savings account is another powerful way to protect your money from taxes while saving for medical expenses so max out those qualifying contributions.
Buy Low / Sell High
If you own stocks, this is the time to evaluate your gains and losses. Selling loser stocks provides a capital loss that can be used to offset some other types of income. Hang on to appreciated stocks to prevent capital gains tax, but you can double your tax benefits by donating, if the conditions are right.
If you’ve held your stock for over a year, you can donate it to you favorite charity and claim a deduction for the full market value of the stock. This also prevents you from taking the capital gain and the tax that goes with it. If you’re thinking of donating loser stocks, don’t. Instead, sell the stocks, take the capital loss for your taxes, then donate the proceeds instead.
Timing your expenses can make a huge difference in your taxable income. With the recent increase in the standard deduction, many people have no use for itemizing. However, if you time it right, you can have the best of both worlds.
For example, let’s say you’re married filing jointly, which gives you a standard deduction of $24,400. If you have deductible expenses of around $20,000 each year, you would be best off using the standard deduction, which would give you a $48,800 deduction over a two year period.
However, what if you could move some of next year’s expenses ahead to this year? If you made additional donations or tax-deductible purchases early, you could move that deduction to this tax year. Let’s say you did this with $8,000 worth of expenses. This would leave you with an itemized deduction of $28k this year, increasing your deduction by $3,600. The decrease in next year’s expenses wouldn’t impact you, since you’ll be able to take the standard deduction for 2020. A simple shift can make a big difference.
If you have questions about 3 Last Minute Moves to Reduce Your 2019 Taxes, contact me for a consultation. I’m an Illinois licensed, Registered Certified Public Accountant with over 25 years of experience. I’m dedicated to providing outstanding tax and accounting services to individuals and small businesses in the Chicago area.
Disclaimer: Any accounting, business or tax advice contained in this article, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, I would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.