The heat is definitely on, but there are plenty of ways to chill out, both personally and to put your 2019 tax bill on ice. As we reach the half-way point of 2019, you should have a pretty good idea of your progress. When it comes to your taxes, we believe there is no better time than right now to make sure you are doing everything possible to limit what you will owe the IRS for 2019.
Following are summer tax moves to consider now before the 2020 tax season:
A bunching strategy will help you have enough qualified expenses to meet some of the itemized deduction thresholds. Basically, you push or pull as many of your allowable expenses as you can into one tax year.
While fewer filers itemize now that the Tax Cuts and Jobs Act (TCJA) greatly expanded the standard deduction amounts and reduced some allowable itemized expenses, some taxpayers still will find filling out a Schedule A is better for them.
Pay particular attention to your medical expenses when you itemize. The TCJA kept the medical expense deduction floor at 7.5 percent of adjusted gross income (AGI), but only for tax years 2017 and 2018. For 2019 filings, medical expenses must exceed 10 percent of AGI, unless Congress acts on a tax extenders proposal to keep the 7.5 percent level for a few more years.
You also could pull some home-related interest deductions into 2019 by making one or more extra mortgage payments before year’s end. By doing that, those loan interest amounts, in most cases, can be claimed as an itemized deduction.
And of course, your donations to IRS-approved charities still are deductible. If you are close to getting more itemized expenses than your standard deduction amount, you can double up and make your usual 2020 charitable gifts in 2019 along with this year’s donation amounts. Giving items you no longer want or need to charity, you will help out the nonprofits, especially in the typically donation slow summer. Plus, as an itemizer you will be helping your tax bottom line since charitable donations are tax deductible.
The TCJA now limits the tax deduction value of home-related borrowing, typically home equity loans and home loans and home equity lines of credit (HELOCs). Before tax reform, interest on a home equity loan or HELOC was fully deductible. Now, the interest can be claimed on Schedule A only where the borrowed money is used to buy, build or improve the home securing loan/HELOC. If you have a home equity loan that now is no longer tax deductible, look into paying it off since the tax law change eliminates the tax-deductible benefit.
Inflation adjustments for the 2019 tax year have bumped up the amounts you can contribute to a workplace 401K plan, as well as to either traditional or Roth IRAs. The maximum amount workers can contribute to a 401K for 2019 is $19,000 if they are younger than age 50. Workers age 50 and older can add an extra $6,000 per year in “catch-up” contributions, bringing their total 401K contributions for 2019 to $25,000. Contributions are generally due by the end of the calendar year. You also might want to consider converting your traditional IRA to a Roth. It could make sense now that individual ordinary tax rates, which are what distributions from these plans are taxed, are at their lowest levels in years.
If you got a big tax refund this year or owed Uncle Sam, you need to reassess your payroll withholding. A withholding review is especially true with the TCJA tax rates and income brackets changes. The Internal Revenue Service has a new W-4 and revised its online withholding calculator reflecting those changes. Make good use of them now while there are still almost six months for the changes to show up in your paychecks.
As Always, Alloy Silverstein’s accountants and tax experts are here to guide you. Contact us to make a tax planning appointment.
Author: Valentina Efremova
Empowering business owners and individuals in South Jersey and Philadelphia to feel confident through proactive accounting and advisory solutions.
