by Rich Herrera
As we approach the end of the year, it’s a good time to be proactive and take stock of your financial situation. Here are a few timeless tips for your consideration that could yield positive results when filing your 2019 taxes.
TO ITEMIZE, OR NOT TO ITEMIZE, THAT IS THE QUESTION: The IRS has released 2019 standard deduction amounts ($12,200 for single and married filing separately, $24,400 for married filing jointly, and $18,350 for heads of households). If your running list of 2019 itemized deductions is close to your standard deduction amount, consider making additional deductible expenses before year-end to reduce your upcoming tax bill. This strategy can be applied every year, although keep in mind that the standard deduction is increased each year to adjust for inflation, making it possible that at some point in the future, you will be better off taking the standard deduction. If you are close to the standard deduction, it might make more sense to alternate the standard deduction in 1 year and itemizing in the other but bunching your discretionary deductions in the same year.
MAKE USE OF TIME, LET NOT ADVANTAGE SLIP: Consider the potential of selling securities that have lost value to offset taxable gains from other investments. Taking capital losses from those investments could be used to shelter capital gains and lowering your overall tax rate. Even if your losses exceed your gains, the net amount can be carried forward and used in later years (subject to additional limitations).
LET US CHOOSE EXECUTORS AND TALK OF WILLS: The Tax Cuts and Jobs Act (TCJA), effectively doubled the federal estate and trust tax exemption at the time of its passage and provided that exemptions in future tax years were also indexed to inflation; the 2019 applicable exemption is $11.4 million for single taxpayers, and $22.8 million for married couples. Although you may not be currently exposed to the federal estate tax, your estate plan may need to be updated to reflect the current tax law. Also, keep in mind that Washington estate tax is applicable on 2019 estates worth more than $2.2 million, so while you may not be subject to federal estate tax, you may still be subject to estate tax at the state level.
If you’re also a business owner, here are a couple of recommendations that you may find helpful as 2019 winds down.
WE KNOW WHAT WE ARE, BUT KNOW NOT WHAT WE MAY BE: For businesses that are pass-through entities, the traditional strategy of deferring revenue into next year while accelerating deductible expenses in the current year only makes sense if you expect to be in the same or lower tax bracket the following year. If you expect to be in a higher tax bracket in 2020, you are better off accelerating income into this year (if possible) and postponing deductible expenditures until 2020.
STRONG REASONS MAKE STRONG ACTIONS: The deduction for Qualified Business Income (QBI) continues to be up to 20% of a entity owner’s business income in 2019. However, the deduction can be constrained in various ways, the most common being limits when you have higher income levels. Instituting a solid tax plan tailored to your specific situation can have a major effect on how much QBI deduction will be available to you on your 2019 tax return.
IF IT WERE DONE…’TWERE WELL IT WERE DONE QUICKLY: Your business could be eligible to write off the entire cost of some or all of your 2019 equipment purchases on this year’s return. 100% first-year bonus depreciation is available for qualified new and used property that is acquired and placed in service in 2019. So, consider making additional qualified purchases between now and year-end and take advantage of the generous depreciation rules in effect.
This post covers only a few general topics that could be potentially valuable to you and your business interests. Please contact us if you have any questions, need more information, or want assistance in creating an individualized year-end tax strategy that delivers the best results for your particular situation.