The purpose of Money Talk is to improve readers' financial capability with research-based personal finance information.
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:
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.
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.
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.
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.
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
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.