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December 7, 2019
Good morning! It’s the first Saturday of December. Do you know what that means?
…yep! It’s tax planning season. 😃
As this year is ending, now is the time to take a closer look at your current tax strategies to make sure they are still meeting your needs and take any last-minute steps that could save you money come tax time. Now is also a good time to start planning for next year.
Our team has been busy reviewing tax planning opportunities for a number of clients. Here’s a look at some of the issues we’re recommending clients consider as they begin their end-of-year review.
Key tax considerations you should be aware of…
We’re now in full swing under new tax laws. The Tax Cuts and Jobs Act (TCJA) was signed into law at the end of 2017, with taxpayers seeing the real affects when they filed their returns in 2019. This legislation has made a profound impact on many taxpayers and has created new planning opportunities. Here are a few items to note:
- Deductions — Due to the increase in the standard deduction, many individuals did not itemize their deductions last year. While this may seem like a simplification for some, there are still strategies to consider. For example, it might make sense to “bunch” deductions, such as charitable contributions. By “bunching” more than a year’s worth of giving into one year you benefit by itemizing one year and taking the standard deduction in other years. In many cases, clients are using Donor Advised Funds to accomplish this while still being able to spread out the timing of their gifts to their preferred charities.
- Withholdings — You may have experienced a surprise when you filed your tax return. This was likely because your withholding adjustment may not have reflected your actual tax situation. Now is a great time to look at your projected tax. Doing this will help avoid unwanted penalties/interest as well as help you plan for cashflow needs. There is time to adjust your withholding before the end of the year.
- Qualified business income deduction — If you own a business or a rental property, you have a potential 20% deduction on business income. There are several reasons why year-end planning is particularly important for this deduction. The deduction can be limited based on taxable income, which means that planning for minimizing income can be important. Also, for rental property owners, there are requirements that may need to be satisfied before the end of the year for you to take this deduction.
- Divorce settlements — If you had a divorce or separation that recently was finalized, any alimony paid or received will not be deducted or included in income.
- Kiddie tax — Based on changes in the tax law, the tax on children’s investment income (known as “kiddie tax”) is now calculated at the trust and estate tax rates. There can be alternatives to filing a separate tax return based on the amount and type of income.
- Tax Loss Harvesting – With the stock market in a 10-year uptrend and this year showing 20%+ returns it’s quite possible that you have stocks with very high capital gains. If you happened to sell any shares this year you may have some significant realized gains. Now is the time to see if you have other holdings that are at a loss which you could sell to “harvest” that loss and offset your capital gains.
- Capital Gain Harvesting – Did you know that some taxpayers pay ZERO tax on capital gains? Yes, that’s right…if your income is below the following limits, then your tax on long-term capital gains is 0%:
- $39,375 for Single taxpayers
- $77,200 for Married Filing Joint taxpayers
- $51,700 for Head of Household taxpayers
**Keep in mind that this income limit includes the amount of any capital gains. So, let’s say you are married with taxable income of $50,000. If you happen to have some large long-term capital gains on a stock you are holding, you might want to sell enough shares to realize $27,000 of gains and pay no tax. You can then turn around and re-purchase the shares at the current price to reset your cost basis. I highly recommend you have a CPA run a tax projection for you to be sure you stay under the income limit.
- Roth Conversions – If you’ve been thinking about converting traditional IRA $$ to Roth IRA $$ now is a good time to look at your income and estimate what tax bracket you are in. If you find yourself in a lower tax bracket than you expect to be in the future, then now might be a good time to consider a Roth conversion.
Fraudulent activity remains a significant threat.
Our firm takes security very seriously, and we think you should as well. Fraudsters continue to refine their techniques and tax identity theft remains a significant concern. Beware if you:
- Receive a notice or letter from the Internal Revenue Service (IRS) regarding a tax return, tax bill or income that doesn’t apply to you.
- Get an unsolicited email or another form of communication asking for your bank account number or other financial details or personal information.
- Receive a robocall insisting you must call back and settle your tax bill.
Make sure you’re taking steps to keep your personal financial information safe.
Be sure your retirement planning is up to date.
I recommend you review your retirement situation at least annually. That includes making the most of tax-advantaged retirement saving options, such as traditional IRAs, Roth IRAs and company retirement plans. We can help you determine whether you’re on target to reach your retirement goals.
Year-end planning equals fewer surprises.
There are many other opportunities to look at as year-end approaches. And, many times, there may be strategies such as deferral of income, prepayment of expenses, etc., that can help you save taxes. We are here to help.
Whether it’s working toward retirement or getting answers to your tax and financial questions, we’re here for you. Please reply to this email or contact our office today at 419-425-2400 to set up your year-end review. As always, planning ahead can help you minimize your tax bill and position you for greater success.
The Good Stuff
It’s been a busy week at the office taking care of client tax planning, helping Josh and Austin with their podcast launch, and celebrating Christmas with the Hixon Zuercher team. I did have time to get through a couple of good podcasts during some travel time this week:
- Capability Amplifier – Episode 26: What I Learned At Warren Buffett’s 2019 Berkshire Hathaway Event. As a Buffett fan I really enjoyed this episode where Mike shares some of his life-changing takeaways from the event.
- The Tim Ferriss Show – Episode 398: Peter Attia, M.D. Warning: This is a looong episode at 2 hours and 45 minutes! I had some extra driving to do this week, so I go through it…sometimes skipping sections. But, there is some good content here for anyone looking to improve your health, fitness, or performance. There are a lot of good links in the show notes where you can also skim the topics Tim and Peter discussed.
- How about you? What are your favorite podcasts? I’d love to hear from you…just reply to let me know.
Have a great weekend,
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