Thursday, July 4, 2019

Mid-Year Tax Planning Strategies

We are at the mid-year point, which is a great time to review projected income tax liability and tax withholding for 2019. The Tax Cuts and Jobs Act (TCJA) affected virtually all taxpayers one way or another. It sunsets in 2026 if Congress does nothing to extend it and then tax rates will automatically increase. Below are five tax tips to consider:

¨      Get to Know the New Tax Form- There is no longer a 1040-EZ form for teens, young adults, and others with simple tax calculations. Everyone must file a 1040 form and complex returns will include six new tax schedules (numbered Schedules 1-6) as well as other familiar tax forms such as schedules A, B, C, and D.


¨      Check Your Tax Withholding- This tip is for everyone. New withholding tables for employers went into effect in 2018, but they may not be accurate for everyone. Check the IRS Withholding Calculator using data about your personal finances. The more withholding allowances claimed, the less money withheld for taxes.


¨      Consider a Roth IRA Conversion Before 2026- For taxpayers with Traditional IRAs, a Roth IRA conversion before age 70 ½ assures there is no tax on future plan earnings. 2019-2025 is a good time for Roth IRA conversions to take advantage of low current tax rates. Conversions can be done in stages over a period of several years to spread out the tax liability. The objective is to pay less tax today than you would in the future.


¨      Consider New Ways to Donate- After the TCJA, many more people are taking the standard deduction instead of itemizing and will not get a direct tax benefit for writing a check to their favorite charity. Alternatives include “bunching” itemized deductions (including donations) periodically and gifting appreciated shares of stock.


¨      Make a QCD Donation- A third alternative gifting strategy, for taxpayers age 70 ½ and over, is to take a qualified charitable distribution from the required minimum distribution (RMD) required from a traditional IRA. Making a QCD donation avoids having a large distribution push someone up to a higher tax bracket.

In summary, the TCJA provides opportunities for new tax planning strategies by taxpayers of all ages. The first step is to become familiar with this law and its impact on your personal income tax liability.

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