Before year-end, we review each client’s tax situation to determine if there are last-minute moves they can make to reduce their tax bill.
Every person’s situation is unique. But below I highlight a few potential areas where you could save on your 2019 tax bill.
- Max out on your company retirement plan. One of the easiest ways to defer tax is contributing to your 401k, 403b, SIMPLE IRA or similar. It’s even a better deal when your company matches some of that. If you have not maxed out for 2019 ($19,000 for most people; $25,000 for 50+), make an extra contribution before 12/31, if you can.
- Contribute to an IRA. You have until 4/15/20 to put up to $6,000 into an IRA (50+ can put in $7,000). Depending on your income, you may be able to contribute to a Roth IRA, which gets no up-front tax break but is money that will never be taxed. Few people take advantage of Roth IRAs. You should, if you can. There’s more information about IRA contribution rules here.
- Harvest investment losses. After the kind of year we had in the market, you may not have many losses to take. But check if there is at least one investment you could sell for a loss to offset any gains you took.
- Be tax-savvy in your charitable giving. With the higher standard deduction, many people receive no tax deduction from charitable giving. The solution is to “lump” a few years of giving into one year so your itemized deductions exceed the standard deduction. One way to “lump” your giving is by opening a donor-advised fund. Whether you are giving directly to a charity or to a donor-advised fund, consider donating investments with gain. You receive a tax deduction today and you dodge tax you would pay on selling in the future. Learn more about donor-advised funds here.
- Manage your “extended” family’s tax bill. An example: if you support your young adult children financially, you could give them shares with gain, not cash. If their income is low enough, they can sell the shares and pay no or less capital gain than you would.
Tax is not the most riveting topic. But if you invest a bit of time before year-end, you’ll likely be happier come April 15.