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Year-End Tax Saving Moves for Individuals

Since 2019 is coming to a close now is the time to take action to proactively reduce your tax liability before the new year.

Included are a few strategies that may help with your tax situation:

  1. Harvest stock losses while substantially preserving one’s investment position. This can be accomplished by selling the shares and buying other shares in the same company or another company in the same industry to replace them, or by selling the original shares then buying back the same securities at least 31 days later.2.
  2. Apply a bunching strategy to deductible contributions and/or payments of medical expenses. The increased standard deduction and limited itemized deduction of state and local taxes to $10,000 will cause many taxpayers to lose the benefit of their itemized deductions.  By bunching multiple years of charitable contributions and medical expenses into one year, a taxpayer may create a taxable benefit that would not otherwise exist.  For example, a taxpayer who expects to itemize deductions in 2019 and usually contributes a total of $10,000 to charities each year, should consider prefunding 2020 and 2021 charitable contributions by contributing a total of $30,000 into a donor advised charitable fund and then distribute the funds to the charities over the following two years.
  3. Take required minimum distributions (RMDs). Taxpayers who have reached age 70-½ should be sure to take their 2019 RMD from their IRAs or 401(k) plans (or other employer-sponsored retired plans). Failure to take a required withdrawal can result in a penalty of 50% of the amount of the RMD not withdrawn. Those who turned age 70-½ in 2019 can delay the first required distribution to 2020, however, this can result in taking a double distribution in 2020 (the required amount for 2019 and 2020).
  4. Use IRAs to make charitable gifts. Taxpayers who have reached age 70-½, own IRAs, and are thinking of making a charitable gift should consider arranging for the gift to be made by way of a qualified charitable contribution, or QCD—a direct transfer from the IRA trustee to the charitable organization. Such a transfer (not to exceed $100,000) will neither be included in gross income nor allowed as a deduction on the taxpayer’s return. A qualified charitable contribution before year end is a particularly good idea for retired taxpayers who don’t need all of their as-yet undistributed RMD for living expenses.
  5. Make year-end gifts. A person can give any other person up to $15,000 for 2019 without incurring any gift tax. The annual exclusion amount increases to $30,000 per donee if the donor’s spouse consents to gift-splitting. Anyone who expects eventually to have estate tax liability and who can afford to make gifts to family members should do so.
  6. Reinvest capital gains in Opportunity Zones. Capital gains reinvested within 180 days into an qualified opportunity fund allows for federal tax deferral and partial tax exemption and tax free appreciation if held for the required ten year period.

These are broad suggestions that will benefit some but not all taxpayers.  To discuss and create a personalized tax strategy, be sure to contact a WFY tax specialist at info@cpa-wfy.com or (949) 910-2727.

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Individual Tax Law Changes

Individual Tax Law Changes

unified framework

Unified Framework for Tax Reform

Republican lawmakers released on Wednesday a “unified framework” for tax reform designed to cut tax rates, simplify the Internal Revenue Code, and provide a more competitive environment for business. The key changes are as follows:

Individuals:

  • Current tax rates: Seven brackets from 10% to 39.6%.
  • Proposed tax rates: Three brackets at 12%, 25% and 35%.
  • Current standard deduction: $6,350 individuals and $12,700 married filing joint.
  • Proposed standard deduction: $12,000 individuals and $24,000 married filing joint.
  • Elimination of personal exemptions, worth $4,050 per person.
  • Repeal of the alternative minimum tax.
  • Repeal of the estate and generation-skipping transfer tax.
  • Eliminate most itemized deductions, including state and local tax deductions (will keep mortgage interest and charitable contributions deduction).

Businesses:

  • Small and family-owned business and flow through entity tax rate reduction (Sole Proprietorships, Partnerships and S Corporations).
    • Current maximum tax rate 39.6%.
    • Proposed maximum tax rate 25%.
  • Current C Corporation tax rate 35%
  • Proposed C Corporation tax rate 20%.
  • Tax U.S. companies only on U.S. income instead of worldwide income.

There is tremendous opportunity this year to plan ahead and create permanent tax saving benefits by structuring a year-end tax plan that fits your situation.

Email us at info@cpa-wfy.com or contact us here discuss how to maximize your 2017 tax benefits from the proposed upcoming changes to “unified framework” for tax reform.