6 Year-End Tax Planning Moves for Individuals
Originally published on November 27, 2019
Updated on October 31st, 2023
With the holidays approaching, you might think that your 2019 tax year is set in stone. But it’s not too late to tweak your financial picture and get the most out of your upcoming return. Here are some year-end tax planning moves that could keep more money in your pocket!
Move #1: Make a full year’s contribution to your HSA by April 15.
If you are eligible to make health savings account (HSA) contributions consider fully funding for 2019. The maximum allowable amount to contribute for 2019 is $7,000 for families and $3,500 for single filers. A $1000 catchup contribution can also be made if you are over the age of 55. These contributions can be entered as deductions on your 2019 return, and come Jan. 1 you can put more funds in the account for the 2020 year.
Move #2: Make a qualified charitable distribution from your IRA.
Taking your yearly IRA distribution—required by law after age 70 ½—increases your income. This in turn can push you into a higher tax bracket and increase your tax liability.
You can counter this by making a qualified charitable distribution (QCD) from your IRA. A QCD is a donation made directly to a charity from your retirement account. Once you reach 70 ½, you’re eligible to make a tax-free QCD and not include it in your gross income. So you can offset a possible tax bracket bump with the donation.
Move #3: Minimize or reduce income subject to surtaxes.
Higher levels of income are often subject to the net investment income tax. This is a 3.8% surtax (on top of federal income tax) levied on the lesser of the following:
- Net investment income (NII) such as capital gains, interest, dividends or passive income.
- The excess of other modified adjusted gross income (MAGI) over a threshold amount ($250,000 for joint filers, $125,000 for a married individual filing separately, $200,000 in all other cases)
You can help lower the amount of surtax you pay by minimizing additional net investment income for the rest of the year. Another idea is to see if you can reduce your MAGI through deductions or by deferring income to the next year. Combining both of these year-end tax planning strategies might help even more.
Move #4: Remember long-term capital gains when selling assets.
The capital gains tax rates are 0%, 15% or 20% depending on your taxable income level. This applies to your profit from selling an asset (such as an investment, land, or stock) you’ve owned for at least one year. To qualify for 0%, your income must fall below $78,750 for joint filers and $39,375 for single filers.
So how can your year-end tax planning help you minimize your capital gains obligation? For starters, you can offset it with a loss from selling something for less than your purchase price. This is called a capital loss. For example:
- You previously bought a piece of land for $25,000. This year you sold it for $35,000 (after owning it for at least a year). This gives you a capital gain of $10,000.
- You also previously bought a stock for $10,000. This year you sold it for $7,000 (after owning it for at least one year). This gives you a capital loss of $3,000.
- You are only subject to the capital gains tax for the net capital gain of $7,000.
Before selling an asset now, look at your current net capital gain and whether you’d profit from this sale. If your net capital gain for the year will increase (and as a result, the tax assessed), consider waiting until next year to sell. Additionally, if your income qualifies you for that 0% rate, consider recognizing capital gains now to avoid the tax altogether.
Keep in mind that certain types of assets have their own capital gains tax rates. For example, collectibles like coins, artwork and precious metals, are usually taxed at 28% regardless of your income.
Move #5: Fund a Traditional IRA if You’re Eligible
Here’s a great tax planning move if you have earned income but don’t qualify for a retirement plan at work. You can contribute up to $6,000/year to a traditional IRA and deduct those contributions on your tax return. If you’re older than age 50, that limit increases to $7,000.
Already have a retirement plan at work? You may still be able to contribute if you’re single with income less than $64,000 (or married filing jointly with income less than $103,000). The deduction is phased out over these income levels.
You have until April 15 to fund the IRA if you want to claim deductions on your 2019 return.
Move #6: Bunch deductions as a workaround for the higher standard deduction.
The Tax Cuts and Jobs Act (TCJA) raised the basic standard deduction amounts and reduced or eliminated several common deductions. This means that if you want to itemize, you might need to get creative with your return.
One year-end strategy is to bunch certain deductions into a tax year in which they’ll benefit you most. For example, postpone an elective medical procedure until next year if you know you’ll have more deductions in the future. Make next year’s charitable donations this year if you need just a little more to itemize. Or pay two years of real estate taxes in one year. (Note that there’s a $10,000 cap on Schedule A taxes.)
We’re sure that you’d rather wait on tax matters and enjoy the holiday season. But clever year-end tax planning could result in a nice gift of your own! So give them a try, and ask your individual tax CPA how you can make the most of them.
All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.
Other Posts You Might Like