Year-End Tax Tips for 2019

Year-End Tax Tips for 2019

Here are 10 things to consider as you weigh potential tax moves between now and the end of this year.

Set some time aside to plan

Effective planning requires that you have a good understanding of your current tax situation, as well as a reasonable estimate of how your circumstances might change next year.  There’s a real opportunity for tax savings if you’ll be paying taxes at a lower rate in one year than in the other.  However, the window for most tax-saving moves closes on December 31st, so don’t wait till the last minute.

Defer income to next year

Consider opportunities to defer income to 2020, particularly if you think you may be in a lower tax bracket then.  For example, you may be able to defer a year-end bonus or delay the collection of business debts, rents, and payments for services.  Doing so may enable you to postpone payment of tax on the income until next year.

Accelerate deductions

You might also look for opportunities to accelerate deductions into the current tax year.  If you itemize deductions, making payments for deductible expenses such as medical expenses, qualifying interest, and state taxes before the end of the year (instead of paying them in early 2020) could make a difference on your 2019 return.

Factor in the AMT

If you’re subject to the alternative minimum tax (AMT), traditional year-end maneuvers such as deferring income and accelerating deductions can have a negative effect.  Essentially a separate federal income tax system with its own rates and rules, the AMT, effectively disallows a number of itemized deductions.  For example, if you’re subject to the AMT in 2019, prepaying 2020 state and local taxes probably won’t help your 2019 tax situation and could hurt your 2020 bottom line.  Taking time to determine whether you may be subject to the AMT before you make any year-end moves could help you avoid a costly mistake.

Bump up withholding to cover a tax shortfall

If it looks as though you’re going to owe federal income tax for the year, especially if you think you may be subject to an estimated tax penalty, consider asking your employer (on Form W-4) to increase your withholding for the remainder of the year to cover the shortfall.  The biggest advantage in doing so is that withholding is considered as having been paid evenly throughout the year instead of when the dollars are actually taken from your paycheck.  This strategy can also be used to make up for low or missing quarterly estimated tax payments.  With all the recent tax changes, it may be especially important to review your withholding in 2019.

Maximize retirement savings

Deductible contributions to a traditional IRA and pre-tax contributions to an employer-sponsored retirement plan such as a 401(k) can reduce your 2019 taxable income.  If you haven’t already contributed up to the maximum amount allowed, consider doing so by year-end.

Take any required distributions

Once your reach age 70 ½, you generally must start taking required minimum distributions (RMDs) from traditional IRAs and employer-sponsored retirement plans (an exception may apply if you’re still working for the employer sponsoring the plan).  Take any distributions by the date required – the end of the year for most individuals.  The penalty for failing to do so is substantial: 50% of any amount that you failed to distribute as required.

Weigh year-end investment moves

You shouldn’t let tax considerations drive your investment decisions.  However, it’s worth considering the tax implications of any year-end investment moves that you make.  For example, if you have realized net capital gains from selling securities at a profit, you might avoid being taxed on some or all of those gains by selling losing positions.  Any losses over and above the amount of your gains can be used to offset up to $3,000 of ordinary income ($1,500 if your filing status is married filing separately) or carried forward to reduce your taxes in future years.

Beware the net investment income tax

Don’t’ forget to account for the 3.8% net investment income tax.  This additional tax may apply to some or all of your net investment income if your modified adjusted gross income (AGI) exceeds $200,000 ($250,000 if married filing jointly, $125,000 if married filing separately, $200,000 if head of household).

Get help if you need it

There’s a lot to think about when it comes to tax planning.  That’s why it often makes sense to talk to a tax professional who is able to evaluate your situation and help you determine if any year-end moves make sense for you.

Need more help?  Please contact or make an appointment with us here, we are here to help. 

IRS Offers Options to Help Taxpayers Who Can’t Pay

IRS Offers Options to Help Taxpayers Who Can’t Pay

If you owe the IRS but you can’t pay in full, there are options.

The agency is anticipating many taxpayers being impacted by the tax overhaul.

If you have to pay more than you expect, the IRS offers options such as paying in installments or delaying the collection.

Taxpayers that owe taxes can choose one of the payment options listed below:

  • Online Payment Agreement — Individuals who owe $50,000 or less in combined income tax, penalties and interest and businesses that owe $25,000 or less in payroll tax and have filed all tax returns may qualify for an Online Payment Agreement. Most taxpayers qualify for this option, and an agreement can usually be set up in a matter of minutes. Online applications to establish tax payment plans, like online payment agreements and installment agreements, are available Monday – Friday, 6 a.m. to 12:30 a.m.; Saturday, 6 a.m. to 10 p.m.; Sunday, 6 p.m. to midnight. All times are Eastern time.
  • Installment Agreement — Installment agreements paid by direct deposit from a bank account or a payroll deduction will help taxpayers avoid default on their agreements. It also reduces the burden of mailing payments and saves postage costs. Even taxpayers who don’t qualify for a payment agreement may still pay by installment. Certain fees apply.
  • Delaying Collection — If the IRS determines a taxpayer is unable to pay, it may delay collection until the taxpayer’s financial condition improves.
  • Offer in Compromise — Certain taxpayers qualify to settle their tax bill for less than the amount they owe by submitting an offer in compromise. To help determine eligibility, use the Offer in Compromise Pre-Qualifier tool.

For more information give us a call.

Powerball jackpot went up to $625 million. Here’s the tax bite if you win

Powerball jackpot went up to $625 million. Here’s the tax bite if you win

With no one hitting all six winning numbers in Powerball’s Wednesday night drawing, the top prize has climbed to $625 million, making it the seventh-biggest jackpot in U.S. lottery history.

And while players daydream about what they’d do with a windfall of that size, they should remember that they wouldn’t really end up with the advertised amount.

Whether the winner takes their prize as an annuity spread out over three decades or as an immediate reduced lump sum, lottery officials are required to withhold 24 percent for federal taxes.

However, the top federal tax rate of 37 percent means the winner would owe a lot more at tax time. And there also typically are state taxes due as well.

“The big impact on winnings is taxes,” said certified financial planner Dan Routh, a wealth advisor at Exencial Wealth Advisors in Oklahoma City. “If you win, just realize how big the tax bill can be and make sure you’re ready to handle it.”

With the odds stacked against players hitting the jackpot — your chance is about 1 in 292 million — the Powerball jackpot has been growing since late December.

For Saturday night’s drawing, the cash option — which most winners go with — is $380.6 million. The 24 percent federal withholding would reduce that amount by $91.3 million.

Assuming the winner had no reduction to their taxable income — such as large charitable contributions made from their winnings — another 13 percent, or $49.5 million, would be due to the IRS ($140.8 million in all).

That would leave the winner with $239.8 million before state taxes. That levy ranges from zero to more than 8 percent, depending on where the ticket was purchased and where the winner lives. In other words, the winner could end up paying more than 45 percent in taxes.

Given the sheer size of the jackpot, experts say it’s important that the eventual winner assemble a team of experienced professionals to help navigate the windfall: an attorney, a tax advisor and a financial advisor.

“There’s a big responsibility that goes with having such a large some of money,” Routh said. “It would be important to surround yourself with a quality team that’s working in your best interest.”

So the question is, if you win, what would you do?

3 Common Tax Mistakes to Avoid

3 Common Tax Mistakes to Avoid

3 Common Mistakes To Avoid

We’ve all heard the quote by Benjamin Franklin “In this world nothing can be said to be certain, except death and taxes”. Yet despite April 15th being on the calendar every single year, and March 15th for business, millions of people find themselves on the IRS hit list for failing to comply with a few basic things.

Whether it’s the “I’m too busy right now, I’ll get to it next week” excuse, or just feeling overwhelmed with all the paperwork, it’s not uncommon for taxpayers to find themselves in hot water with the Internal Revenue Service.

31 million people are not withholding enough for taxes, according to this CNBC report, and this could lead to a lot of them owing the IRS more than what they think. In addition, here are 3 common mistakes people make that often lead to getting a nastygram from the IRS.

1) Overlooking Income or Inaccurately Reporting Income

We all want to limit our tax liabilities but manipulating your income in an attempt to hide money is not a winning strategy. This can easily land you in heaps of tax trouble, so it’s important to accurately report your income.

Tax Mistakes
Tax Avoidance vs. Tax Evasion
Tax avoidance are the legal things you do to avoid paying more taxes than necessary. Where it can get you in trouble is if you’re evading the tax authorities either by doing something, like filing a tax return after falsifying your income or deductions to get a favorable tax bill, or by not doing something you’re supposed to, such as not reporting all your income or not filing a return.

Michael Cohen, Donald Trump’s former lawyer was recently sentenced to 36 months in prison, in part for 5 counts of tax evasion. He failed to report $4 million in income from his taxi fleets in New York and Chicago, $30,000 in profit for the sale of a Birkin Handbag he arranged, $100,000 profit from selling a property, and $200,000 in consulting fees.

Now, most Americans don’t mean to evade the IRS and under-report income. If you’re like most people, you might just forget to report that side-gig you have as income, or the cash payments you received. In any case, making a list of all the ways you made money that year and gathering supporting documents, as well consulting with your tax advisor, are some ways to prevent the common mistake of inaccurately reporting income.

2) Misunderstanding Extension Rules: Filing and Paying Late

By not filing your tax return timely you’ll be hit with the IRS’s 25% failure to file penalty.

Of all the mistakes people make when it comes to taxes, this one is the most common and often the most costly. Most people think that filing for a tax extension means they also get extra time to pay without any consequences. That’s just not true.

When you file for an extension you also get hit with penalties, interest, and other fees if you don’t pay in what you owe with the extension. This alone could cost you a strikingly large amount, especially if you’ve built a habit of always filing for an extension.

3) Pushing It With Your Expenses or Unrealistic Deductions

Commingling your business and your personal expenses, exaggerating deductions or writing off things you’re not supposed to can trigger loads of red flags and can cause an IRS audit. Writing off that vacation to Hawaii? The designer clothing you say you need for work? What about your mileage to and from your main place of work? All of these are no-no’s and have strict rules if you do deduct them.
Staying compliant by getting all of your un-filed tax returns filed and having a tax professional guide you is the fastest and easiest solution to staying out of tax trouble.  Contact us for more information.