The tax code can be a labyrinth to navigate. Nevertheless, taking action now – while you, your financial advisor and accountant have time to think through the possibilities and maximize your 2019 tax savings – could be more than worth the effort. Consider adding one or more of these four tax-mitigating moves to your capital gain/loss harvesting and year-end charitable giving.
Who can benefit? Those who think they’ll be in the same or lower tax bracket next year.
What is it? Save on this year’s higher taxes by withholding your bonus or postponing income until next year when you may be in a lower tax bracket.
Who can benefit? Those who think they’ll be in a lower tax bracket next year.
What is it? If you anticipate higher taxes this year, accelerate deductions (e.g., philanthropic donations, prepaid state income and property taxes) to get a larger percentage tax benefit. Bonus: Reducing this year’s adjusted gross income also may keep you under the 3.8% Medicare surtax threshold.
Who can benefit? Those who think they’ll be in a higher tax bracket next year.
What is it? If you anticipate higher taxes next year, perhaps due to an increase in income, accelerating income and postponing deductions may help reduce your 2020 tax bill. Consider selling assets at a gain, billing in advance or deferring deductions until next year.
Who can benefit? High-net-worth families who want to donate significant amounts.
Did you know you can use a credit card to make a charitable gift in December and you can still claim the deduction for 2019, even if you pay the bill in January 2020?
What is it? If you want to make a generous charitable gift, consider doing so before year-end or establishing a donor advised fund*, which allows you to receive an immediate federal income tax deduction even if the funds will not be disbursed until later years. If tax rates do go down in 2020, you will receive a larger tax benefit from the deduction since tax rates could be higher this year.
If you won’t have sufficient itemized deductions to exceed the increased standard deduction, you may wish to bunch deductions by making a large charitable gift, equal to the total donations you would have made over several future years. This could help you take advantage of the ability to itemize this year, while in other years you would take the standard deduction.
Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. While familiar with the tax provisions of the issues presented herein, Raymond James financial advisors are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional.
* Donors are urged to consult their attorneys, accountants or tax advisors with respect to questions relating to the deductibility of various types of contributions to a donor advised fund for federal and state tax purposes. To learn more about the potential risks and benefits of donor advised funds, please contact Raymond James.