As we cross the mid-point of 2019, take a few moments now to consider your 2019 income tax situation, and what you can do to improve it now. Many of the traditional planning ideas either no longer work, or have changed notably under the Tax Cuts and Jobs Act of 2017 (the “TCJA”). The result of a focus on planning now can be a better outcome with your 2019 tax filings done early next year.
Here are some issues to consider.
- Invest in a Qualified Opportunity Fund (“QOF”). QOFs are entities that invest in real estate or businesses in certain low-income communities. Where you have significant capital gains in 2019, you can reinvest the gain within 180 days into a QOF, and several benefits will result. First, the tax on the gain is deferred until 2026. Second, additional basis in the QOF is “created” if the QOF investment is held for 5 or more years. Third, appreciation on the investment in the QOF through 2047 is not taxed!
- Are you taking best advantage of preferential tax rates on investment income? Long-term capital gains (gains on investments held more than one year) are taxed at rates of 0%, 15%, or 20%. (Note that a supplemental tax on net investment income can also apply.) With proper planning on a modest income year, you can sell stock at a gain, and qualify for the 0% rate. If you cannot get your income that low, can you gift the appreciated stock to family members with little to no income and let them sell it at a 0% rate? For 2019, the 0% tax rate on long-term capital gains applies to taxable income up to $78,750 married-filing-jointly and $39,375 single.
- With the advent of higher standard deduction brackets after the TCJA, many taxpayers find themselves struggling to itemize. This is particularly true of the taxpayers whose charitable contributions are not significant, or their house is largely or completely paid off, and home mortgage interest is minor or zero. These taxpayers may benefit from the concept of bunching deductions or planning to itemize every other year, and claiming the standard deduction in the off years. Contact us to see if you are a good candidate for this plan, and if so, how that affects your deduction planning for 2019.
- Today, we have many tax ways to meet charitable commitments. This includes (a) cash contributions, (b) contributions of appreciated long-term gain property, (c) contributions to donor-advised funds, (d) qualified charitable distributions from IRA required minimum distributions. Let’s discuss whether your charitable contributions are getting the most tax bang for your buck.
- Just a reminder that, for many of our clients, the tax benefit of doubling up on property taxes (by paying one bill in January and the next bill in December of the same year) is no longer effective after the TCJA. Contact us if you have any question about prepaying next years’ property tax.
- If you have access to additional funds in 2019, and you carry a balance on your home equity line, consider retiring this balance if it wasn’t used for purchase or acquisition of your home. We can no longer deduct home equity interest for cars, boats, vacations, or other uses other than your principal or second home.
- Maximize your retirement deferral for 2019. Make sure that you are on the path to take the most benefit of this tax provision.
- Are you sure that your business is operating in the most efficient business entity? In the aftermath of the TCJA, where some fundamental business tax rules changed, some reconsideration of the legal form of your business may be in order. We stand by ready to help.
- Did you receive a Section 199A deduction on your 1040 for up to 20% of the qualifying business income? Was the deduction at the maximum level available? Now is the time to discuss this with us, and to see what can be done in 2019 to make this deduction work more effectively.
- If you want to establish a 401(k) or other employer retirement plan, be aware that specific deadlines apply. Generally, the plan must be written and adopted during 2019.
- Reconsider the level of tax payments are you making or withholding for 2019. Is it excessive because you are expecting lower taxable income in 2019? Or, is it not keeping up with the pace required based on the prior year return? Feel free to discuss this situation with us.
Let us know how we can assist you with mid-year tax planning analysis.