Not Too Late – Year End Planning Tips

November 18, 2019

It is not too late to implement ideas that will help lower your tax bill for this year and possibly in 2020. Below is a list of select items that may help you save tax dollars if you act before year-end. Please contact us at your earliest convenience so we can advise you on which tax-saving strategies may apply to you and you can implement now.

The highlights of the 2017 New Tax Act that inform current tax ideas are:

  • For individuals, changes include lower income tax rates, a boosted standard deduction, severely limited itemized deductions, no personal exemptions, an increased child tax credit, and a watered-down alternative minimum tax (AMT).

  • For businesses, the corporate tax rate has been reduced to 21%, there is no corporate AMT, there are limits on business interest deductions, and there are very generous expensing and depreciation rules. In addition, non-corporate taxpayers with qualified business income from pass-through entities may be entitled to a special deduction.

Updating your year-end tax projections is an important step in analyzing optimal utilization of the myriad of existing and new carryovers. Additionally, the time-tested approach of deferring income and accelerating deductions to minimize taxes still is important for many taxpayers, along with the tactic of bunching expenses into this year or the next to minimize deduction restrictions.

Year-End Gifts and Estate Planning Tips

  • Utilize Remaining Lifetime Exemption: Take advantage of your opportunity to gift $11,400,000 over the course of your lifetime or at your death free of federal gift, estate, and generation skipping transfer taxes. This increased federal lifetime exemption is set to sunset on December 31, 2025 but may sunset sooner depending on the results of upcoming elections.

  • Make Annual Exclusion Gifts: You may gift an unlimited amount to a U.S. citizen spouse and you may gift $15,000 per any other recipient.

  • Set Up a Grantor Retained Annuity Trust: Take advantage of today's ultra-low interest rates to fund with assets you expect to appreciate greatly in the next few years.

  • Loans to Family Members and Trusts: Lock in today's low interest rates by making loans to family members and/or trusts. This allows you to transfer future growth free of gift and estate taxes. Furthermore, interest payments are tax-free if you make the loan to your grantor trust.

  • Swap Assets with Your Grantor Trust: Swapping low or high basis assets from your Trust may be to your tax advantage and should be reviewed.

  • Reminder to Update Your Will and Beneficiary Designations: Reminder that year-end is a good time to update your will and your beneficiary designations to ensure they are still in keeping with your wishes.

Year-End Individual Tax Planning Tips·       

  • Qualified Charitable Distribution: If you are age 70½ or older by the end of 2019, consider making charitable donations from your IRA. The amount of the qualified charitable distribution reduces the amount of your taxable Required Minimum Distribution (RMD), which can result in tax savings.

  • Capital Gains: Harvesting capital losses and matching the short term and long term gains/losses will maximize the tax benefits. Don't overlook Mutual Fund distributions for your year-end planning.

  • Roth Conversion: Consider converting to a Roth IRA to eliminate income tax on future growth for subsequent generations.

  • 529 Plan Distribution: Consider setting this up to pay for qualified higher education expenses and yields possible state tax deductions.

  • Donate Highly Appreciated Securities to Public Charities or Donor Advised Funds: This allows charitable deductions at fair market value without recognition of capital gains.

You may also want to consider - using a credit card to pay deductible expenses to increase your 2019 deductions (even if you don't pay your credit card bill until after the end of the year). Also, consider disposing of a passive activity as doing so will allow you to deduct suspended passive activity losses.

Year-End Business Tax Planning Tips

  • Section 199A Qualified Business Income: As a business owner (other than corporations) you may be entitled to a deduction of up to 20% of qualified business income. These rules are quite complex – please call us to consult.

  • Qualified Opportunity Zone (QOZ): If you invest capital gains into a "qualified opportunity fund" within 180 days after the date of a sale, the tax on the gain is not due until December 31, 2026 or if earlier, the date you sell your investment in the fund. If the capital gains are realized by a flow through entity, you have 180 days from 12/31/19 to invest in a QOZ.

Please note, it is important to evaluate year-to-date gains - and anticipated gains - through the end of year from flow-through entities. You must invest in QOZ by December 31, 2019, before 5% of the basis step-up is lost forever. The timing requirement to act on this opportunity is quite complex – please call us to consult.

  • Section 179 and Bonus Depreciation: Businesses should consider making expenditures that qualify. For tax years beginning in 2019, the Section 179 expensing limit is $1,020,000, and the investment ceiling limit is $2,550,000.

  • Businesses also can claim a 100% bonus first year depreciation deduction.

These are just some of the year-end steps that can be taken to save taxes. Please contact us so we can choose those that will work best for you.

Disclaimer: Please check with a partner at Perelson Weiner regarding this material. Clients and others should not rely solely on this information when making decisions.