December is here and amid the excitement of holiday planning, parties, decorating and shopping most of us are not thinking about our 2019 tax returns. Taking the time to evaluate your situation now may save you time and money on April 15th. Although the Tax Cuts and Jobs Act (TCJA) reduced individual income tax rates, increased the standard deduction and limited or reduced other deductions, you still have time to act before year-end to positively impact your 2019 tax situation.
The traditional strategies of income deferral and deduction acceleration are still viable options for many taxpayers. Taking bonuses in January instead of December, waiting until January to sell stocks with capital gains, selling stocks that have lost value and delaying billings for clients so that payments aren’t received until next year are each effective income deferral tactics. Delaying income will reduce “adjusted gross income” and possibly enable you to take advantage of tax credits and deductions that are phased out or eliminated at higher income levels.
Another way to reduce your income for 2019 is to maximize 401K and IRA contributions. Be sure to take advantage of the catch-up provisions. IRA contributions for 2019 may be made until April 15th of 2020 and still be deducted for 2019. Postponing IRA distributions other than the RMD (required minimum distributions) until January will reduce your taxable income as well.
Deductions may be accelerated by paying deductible expenses this year instead of next. Paying expenses with a credit card will allow the deduction in the current year even if the credit card bill is not paid until 2020. The TCJA increased the standard deduction and limited the deduction for state and local taxes to $10,000. These changes made itemizing deductions less beneficial for some taxpayers. “Bunching” deductions such as making charitable contributions for two years in 2019 and none in 2020 may benefit you by increasing your itemized deductions amount to more than the standard deduction. The charity will still receive the same amount of contributions, but you will reduce taxable income in 2019.
Depending on your individual tax situation you may benefit by accelerating income into 2019 and delaying deductions until 2020. If you know that your income will be greater, you will have less dependents or that your filing status will be less advantageous in 2020 accelerating income and deferring deductions may be the right choice.
Start by gathering your income and deduction information and meeting with your tax advisor to decide which strategy is best for you. Contact one of our Peoples Tax professionals to assist you before December 31st, so you can minimize your tax for the 2019 tax year. Call us at (804) 204-1040 or email us to schedule an appointment today!