With 2019 coming to a close, many of us are preparing for the holidays, and are trying to wind things down. Before you enter that holiday hibernation, we want to remind you of a few tax planning ideas that you may want to add to your holiday “to-do” list.
Required Minimum Distributions
Be sure that you have taken any required minimum distributions from your traditional IRAs, old 401ks, or even beneficiary IRAs. This oversight comes with a costly 50% penalty owed to the IRS, so be sure you are on top of this one.
If you are over 59 ½ and are in a lower tax bracket this year than you anticipate for 2020, you may wish to consider taking distributions from an IRA to fill up this lower tax bracket. This is especially helpful if you’re currently in the 12% tax bracket.
Tax gain harvesting
If your income is low enough (below $39,375 for single filers and $78,750 for married filing joint), you may be able to realize long-term gains in a taxable account at $0 tax cost. This is a good opportunity to rebalance your portfolio back to your target allocation or to reset your cost basis by selling then buying the position back to limit future tax liabilities.
Appreciated stock donation
While most of us see the newly standard deduction (courtesy of the Tax Cuts and Jobs Act of 2017) and think that itemizing deductions on our taxes may not be in our future again for a while, consider that charitable contributions line on the Schedule A. Do you have a highly appreciated stock or mutual fund that you’d like to sell but don’t want to pay the capital gains tax on it? You can donate shares that have been held for more than a year to an eligible non-profit organization. Not only are you avoiding paying capital gains tax on these donated positions, but you may also be looking at a higher tax deduction if you exceed the standard $12,200 for single and $24,400 for married filing joint when you consider itemizing.
Preparing for 2020
If you are maxing out a 401(k), 403(b), or 457 plan, don’t miss out on the $500 increase to your contribution limit. You can now contribute up to $19,500. If you are over 50, you can contribute an additional $6,500 for the catch-up contribution limit. Employer contributions are not a part of either of these annual figures.
Contribution limits to both Traditional and Roth IRAs remain unchanged at $6,000 as well as the $1,000 catch-up contribution for those age 50 and over.
Did you know that you have until April 15th, 2020 to make your 2019 Traditional or Roth IRA contributions? You can find out if you’re income-eligible for a contribution as prepare your 2019 tax return. If you’re eligible for a deductible IRA contribution (full deduction for modified AGI up to $64,000 if single and $103,000 if married filing joint), doing so will lower your tax burden for 2019!