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7 Must Read Year-End Tax Planning Ideas


Potential Tax Saving Strategies to Consider Before Year End


The fourth quarter is here already—so it just might be the right time to consider our seven tax tips to remember for year-end planning.

1. Maximize retirement saving. 

If you turned 50 this year, you’ entitled to make a catchup contribution of $6,000 to your 401(k) if your plan allows. It’s not too late to catch up for 2019. Also, anyone with compensation can contribute to a traditional IRA[1]. It’s the deductibility of the IRA contribution that is subject to income limits. Unfortunately, Roth IRA contributions do have income limits.

In January, you can make their 2020 IRA contribution. Why not consider making the IRA contribution at the beginning of the year?

2. Review where you are with capital gains and losses.

Mutual fund capital gain distributions typically are announced during the fourth quarter. After taking distributions into account, what should you do, if anything? If you are in the 22% or higher tax bracket, tax-loss harvesting may make tax sense. You can harvest losses in excess of your gains, but  are limited to taking $3,000 in losses in excess of gains. Losses not used in 2019 can be carried forward indefinitely for federal tax purposes.

There is a long-term capital gain tax rate of 0% in the two lowest (10% and 12%) marginal tax brackets. If you find yourself with projected taxable income of less than $39,475 for single filers, or $78,950 for married filing jointly, you may want to recognize long gains, which could be taxed at a 0% federal tax rate. Tax-gain harvesting can be a tax-smart idea.

3. Time to review itemized deductions for 2019

Results for the 2018 tax filing season indicate the number of taxpayers itemizing are down because of the increased standard deduction and the state and local taxes (SALT) deduction being limited to $10,000 for married and single filers. To itemize tax deductions, you  will need to exceed the standard deduction. The standard deduction is something the government gives each taxpayer. Also, taxpayers don’t have to complete Schedule A - Itemized Deductions.

Given the significant changes to itemized deductions, we believe a key consideration for itemizing will be charitable contributions. Let’s look at various ways to make charitable contributions.

First, filers need to make charitable donations by year-end. Contributions are deductible in the year they were made. Therefore, donations charged to a credit card before the end of 2019 count for 2019. This is true even if the credit card bill isn’t paid until 2020. Also, checks count for 2019 as long as they are mailed in 2019.

Consider gifting appreciated securities instead of cash, since gifting cash is very tax-inefficient. Gifting stock with a fair market value of $5,000 with a cost of $1,000 could save $952 in tax ($4,000 X 23.8%); plus, you still receive a charitable contribution deduction. The top marginal tax bracket for federal long capital gain rate is 23.8%.

4. Advanced charitable planning: Qualified charitable distribution

If you are retired and find yourself no longer a good candidate to itemize and are charitably inclined, they should consider a qualified charitable distribution (QCD). A QCD allows a tax-free transfer (up to $100,000) directly from an IRA to a qualifying charity. The taxpayer must be age 70½at the time of the distribution to be eligible. Also, a QCD must be done by December 31, 2019 to count for the current tax year.

When a taxpayer elects to make a required minimum distribution (RMD) a QCD, the taxpayer does not pick up the RMD as income, but also does not take the charitable contribution deduction. If you are not planning to itemize, a QCD can be a tax-smart idea.

Donating the RMD to charity should reduce both adjusted gross income (AGI) and taxable income. Reducing income can produce potential tax benefits, such as:

›› Reduced Social Security benefits that are taxed

›› If AGI falls below $250,000 for married filing jointly (MFJ) or $200,000 for single, investment income will no longer be subject to the 3.8% Net Investment Income Tax.

›› Future Medicare premiums could be reduced

The “lump and clump” strategy

As mentioned above, taxpayers who used to itemize may not be doing so unless they engage in some proactive planning before year-end. Here is an example.

Mr. and Mrs. Smith, ages 55 and 54 respectively, have the following 2019 projected itemized deductions:

(That’s less than the standard deduction of $24,400, so the Smiths will not itemize.) 

What can the Smiths do? One strategy is known as the “lump and clump.” Instead of gifting $2,500 to charity in 2019, why not consider “lumping” four years of charitable donations in 2019. Then “clump” those donations into a donor-advised fund.

(That’s more than the standard deduction of $24,400, so the Smiths will itemize and get the full benefit of their charitable contributions.)

Though the Smiths may not want to dispense $10,000 of charitable contributions in one year, what can they do? They could “clump” the $10,000 in contributions into a donor-advised fund (DAF). The Smiths will receive an immediate tax deduction for the contribution to the DAF. In the future, the Smiths can decide what charities will benefit, but in the meantime, the monies can be invested. A final note: DAFs accept appreciated securities but will sell them once contributed with no tax bill back to the Smiths.

5. Almost everyone is in a lower tax bracket now.

This might be a good time to take advantage of the lower tax rates and consider doing a Roth conversion by December 31, 2019. Roth conversions don’t always carry a tax bill. Taxpayers can mitigate the tax bill by pairing tax strategies. For instance, you could increase their charitable deductions to match the amount of their Roth conversion. Maybe a passive activity with suspended losses becomes unsuspended and that is great time to consider a Roth conversion. Remember there are no income limits for Roth conversions.

6. If you are considering gifting to family or friends, try to do it by the end of the year.

Taxpayers can give up to $15,000 to anyone without filing a gift-tax return. Consider gifting appreciated securities, which removes the gain from your portfolio and possibly reduces the tax bill on the sale if the recipient has a lower tax rate than the gifter. Consider not gifting portfolio losers; it may be better to take the loss, because your client might need it someday.

7. Why pay tax now when you could pay later?

Generally, taxpayers want to accelerate deductions and defer income. There are plenty of income items and expenses you may be able to control. Consider deferring bonuses, consulting income or self-employment income. On the deduction side, you may be able to accelerate charitable contributions, state and local income taxes, and interest payments.

Tax planning is a year-round exercise that requires active participation. If you want to help lower your tax bill, it’s important to be proactive and plan now! 

Please note that charitable substantiation requirements apply per IRA pub 1771: “A donor can deduct a charitable contribution of $250 or more only if the donor has a written acknowledgment from the charitable organization.”

The donor must get the acknowledgement by the earlier of the date the donor files the original return for the year the contribution is made, or the due date, including extensions, for filing the return.



Investing involves risk, including possible loss of principal.
Neither Post Oak Private Wealth Advisors nor its affiliates provide tax advice. Please note that (i) any discussion of U.S. tax matters contained in this communication cannot be used by you for the purpose of avoiding tax penalties; (ii) this communication was written to support the promotion or marketing of the matters addressed herein; and (iii) you should seek advice based on your particular circumstances from an independent tax advisor. For Financial Intermediary Use Only. Not for Public Distribution.