Year-End Tax Planning Ideas
By Jennifer Rossettini, CFP®
As 2019 draws to a close, the focus for many of us will turn from holiday shopping to getting ready to file our income tax returns for the year. Try to find some time in between the hustle and bustle of the season to consider the following opportunities to potentially lower your taxable income.
Pay Some 2020 Bills Early: As we learned during tax season last year, the increased standard deduction (from $12,700 in 2017, for married couples filing jointly, to $24,000 in 2018) that came about as a result of the Tax Cuts and Jobs Act of 2017 made it more difficult to itemize deductions. If you anticipate being close to the threshold for 2019, consider prepaying some deductible expenses that are due in January like mortgage payments or state taxes.
Prepay Tuition or Contribute to a 529: If you are the parent of a student in their first four years of undergraduate study, you can deduct up to $2,500 for each student, even if you do not itemize. If your tuition payments have not yet reached this level, consider paying January’s tuition bill in 2019.
If you are a Virginia resident and a parent or a grandparent who is thinking of putting money away for your child’s or grandchild’s education, consider contributing to a 529 college savings plan. You may not be able to deduct these contributions on your federal tax return, but you can deduct up to $4,000 per account from your Virginia taxable income. If you are 70 years of age or older, the $4,000 limit does not apply – you can deduct the full amount of your contribution from Virginia taxable income.
Harvest Investment Losses: Look for holdings in your taxable investment portfolio that may have lost value this year. Speak with your financial advisor about whether you should sell those holdings at a loss. If you have holdings that have gained value this year, you can not only use the losses to offset any gains in your portfolio, you may be able to carry over any excess loss (up to $3,000) to reduce your ordinary taxable income.
Max Out Your Pre-Tax Retirement Savings: Taxpayers can contribute up to $19,000 per year, pre-tax, to employer-sponsored retirement plans such as 401(k)’s, 403(b)’s, or federal Thrift Savings Plans. If you are over 50 years of age, you can add an additional $6,000 contribution for a total of $25,000. Pre-tax savings decrease your taxable income.
If you are self-employed, the tax savings could be even greater. For a solo 401(k) plan, you can contribute up to 20% of net self-employment income to the plan. This amount is capped at $56,000 per year or $62,000 if you are 50 or over.
Bunch Two or More Years’ Worth of Charitable Contributions Into One Year or Open a Donor Advised Fund: If you normally contribute to charitable organizations, but the tax benefit of doing so is lost because of the increased standard deduction, consider “bunching” two or more years’ worth of contribution into one year in order to exceed the standard deduction. If you do not wish to give that much to any given charity at one time or you are undecided as to which charitable organizations to support, you can contribute a lump sum to a donor advised fund, take the deduction in the year of the contribution, and decide later how you want to ultimately have those funds distributed.
Transfer IRA Money to Charity: If you are over 70 ½ and required to take a distribution from your IRA this year, consider donating that required distribution directly to charity if you do not need the funds to support your lifestyle. This is a great way for taxpayers who no longer itemize their deductions due to the increased standard deduction to still support their favorite charities AND receive a tax benefit. As long as the distribution is made directly from the custodian of the IRA to the charity, taxpayers can donate up to $100,000 this year.
Ask Kit Kat: Beagle Brigade
Hook Law Center: Kit Kat, what can you tell us about the beagle brigades which patrol airports and border entry points?
Kit Kat: Well, this is an interesting tale! Beagles, as it turns out, are perfect for sniffing out meats, fresh fruits, vegetables, plants, seeds, and any products made from animals or plants. Some passengers innocently bring these items into the United States, either taking a ham sandwich which was served on the airplane, or bringing favorite fruits/vegetables from their home country. While most passengers don’t understand the degree of danger this poses, the beagle brigade attached to US Customs and Border Protection are there to make sure these items are disposed of properly upon entry to the United States. Pork products pose a special hazard. African swine fever may be responsible for having infected ¼ of the world’s pork since last August. China, Vietnam, Philippines, Eastern European countries like Romania and Bulgaria, and in September, Belgium was added to the places where the swine flu has spread. There is no cure, nor a vaccine to prevent this disease. While humans themselves cannot catch the virus, the United States is trying to keep it from infecting American animals. At Dulles International Airport in Virginia on a daily basis, 100-400 pounds of prohibited items are seized each day. Agents estimate 99% of it is food.
As it turns out, beagles are ideally suited for this work. They have great olfactory sense, and they are friendly, smart, and non-threatening. Their training involves being able to identify 5 things: apples, mango, citrus, beef, and pork. Special attention is given to identifying pork products because of the swine flu problem. US Customs wants to add, in the near future, 60 more teams to bring the number of beagle teams to 179 across the United States. It also turns out to be an economical investment to deploy the beagles, because their sniffing capability is so strong, that they can sense contraband even when it is moving on a luggage carousel. Each correct identification saves taxpayers untold money in disease prevention and actual outbreaks of disease.
They are vital partners of US Customs and Border Patrol. Their handlers love them, too! They do all this hard work for simple rewards like Pup-Peroni, a dog treat and a pat on the head!
(Laura Reiley, “Ham’s best friend: The beagle brigade is the last line of defense against African swine fever in U.S.,” The Washington Post, Nov. 27, 2019)