December 2019 – Ten Financial Tips to End the Year on a High Note

Shorter days remind us that 2019 is rapidly drawing to a close. For many of us, this means decorating the house and attending holiday parties. In addition to these festivities, this season gives an opportunity to take stock of our financial lives. Taking care of these items before year-end will help us begin the year peacefully and reduce potential stress come April. Consider this 10-point checklist:

  1. Defer income to 2020. If you have flexibility in the timing of income, you may defer income to 2020, unless you anticipate your marginal tax rate will be significantly higher in 2020. Be mindful of the 3.8% surtax on unearned income and the 0.9% Medicare surtax on wages for married couples with wages in excess of $250,000 ($200,000 for single filers).
  2. Accelerating write-offs from 2020 to 2019. If your medical expenses have topped the 10% of AGI threshold, consider getting and paying for elective procedures this year. Bunch donations for multiple years into 2019 by donating to a Donor Advised Fund (see Turbocharge your giving with tax-efficient strategies).
  3. Harvest tax losses. Did you reposition your portfolio this year and experience significant capital gains? Are you anticipating capital gains distributions from mutual funds (these often happen in December)? To offset those gains (and reduce capital gains taxes owed), consider selling positions with unrealized losses. Be mindful of (1) any capital loss carryforwards on last year’s tax return which can be used this year and (2) wash sale rules if you buy the securities back in the new year.
  4. Are you over 70.5? Don’t forget to take your Required Minimum Distribution (RMD) from your 401K and IRA accounts before December 31st. If you do not need the entire distribution and have philanthropy plans, consider making a Qualified Charitable Distribution (QCD) which will lower your income for the year.
  5. Did you have a baby/grandbaby this year? Despite the $15,000 annual gift tax exclusion, you can make a one-time $75,000 contribution ($150,000 for a married couple) to a 529 plan. This gift is treated as being made ratably over five years. This will give the account a long runway to maximize earnings potential before your child (or grandchild) needs the money for education purposes. Added bonus: many states offer a state income tax deduction.
  6. Roth conversion. Under the TCJA, many taxpayers are subject to a lower federal tax rate. For example, a married couple making $300,000 in 2017 paid 33% marginal federal tax rate; in 2019, the same couple paid 24%. Given this law is set to expire in 2025 (at which point tax rates will go back up, if Congress does not extend the TCJA), consider converting a portion of your Traditional IRA to Roth IRA while these lower tax brackets are in effect.
  7. Opportunity zones. Any capital gains realized in 2019 (and re-invested into a Qualified Opportunity Fund within 180 days) will be eligible for 15% basis step-up. Be mindful that the rules are complicated; engage your financial and tax advisors before executing on this suggestion.
  8. Open enrollment for health insurance. Don’t forget to make your selection by December 15th. Consider a Health Savings Account (see HSA – the triple crown of tax-advantage savings account). Be mindful that your company’s open enrollment period may differ from the ACA.
  9. Top up retirement savings. Maximize your contributions (401(k): $19,000, or $25,000 if you are over 50. IRA: $6,000, or $7,000 if you are over 50), especially any amount that would be matched by an employer.
  10. Check tax thresholds. Review your income and IRS tax thresholds (e.g., Medicare Part B premiums, Medicare surtax, 0% capital gains rate, QBI) with your tax adviser.

As always, we are happy to discuss these ideas in greater detail and help you apply them to your individual circumstances. Happy holidays!

This information is not intended to be a substitute for individualized tax advice. As always, we encourage you to include your CPA in tax-related decisions.

 Julie Zawislak