When it comes to saving money and reducing taxes, there are many ideas you can put into place. 415 Group Senior Manager Holly Lieser, CPA, explains why you should discuss the options listed below with your tax advisor and the importance of creating a customized plan for you.
There's still time to reduce your potential tax obligation and save money this year (and next). Here are some ideas to consider:
- Estimate your 2019 and 2020 taxable income. With these estimates you can determine which year receives the greatest benefit from a reduction in income. By understanding what the tax rate will be for your next dollar earned, you can understand the tax benefit of reducing income this year AND next year.
- Fund tax-deferred retirement accounts. An easy way to reduce your taxable income is to fully fund retirement accounts that have tax-deferred status. The most common accounts are 401(k)s, 403(b)s and various IRAs (traditional, SEP and SIMPLE).
- Take your required minimum distributions (RMDs). If you are 70½ or older, you need to take required RMDs from your retirement accounts by Dec. 31. Don't forget to make all RMDs because the fines are hefty if you don't — 50 percent of the amount you should have withdrawn. Keep in mind, even if you don't have RMDs yet, removing a planned amount from your retirement accounts each year may be more tax efficient than waiting until you are required to do so.
- Manage your gains and losses. Rebalance your investment portfolio, and take any final investment gains and losses. When you have more losses than gains, up to $3,000 can be used to reduce your ordinary income. With careful planning, you can take advantage of this loss amount each year.
- Finalize your gift-giving strategy. Each year you may gift up to $15,000 without tax reporting consequences to as many individuals as you choose. Consider any gift-giving you wish to make up to the annual limit. This could include gifts of cash or property, and investments.
- Donate to charities. Consider making end-of-year donations to eligible charities. Donations of property in good or better condition and your charitable mileage are also deductible. Receiving proper documentation that acknowledges your contributions is important to ensure you obtain the full deduction. Have a plan by knowing your total deductions for the year to help you decide how much and when to donate. Pulling some donations planned for 2020 into 2019 may be a good strategy.
- Review your automated billing transactions. This is a good time to identify what automatic monthly expenses should be reviewed for reduction or elimination. You may also discover billing for services you thought were canceled. This specific review often catches errors that a simple account reconciliation may be missing.
- Organize records now. Start collecting and organizing your tax records to avoid the scramble come tax season.
- Develop your own list. Use these ideas as a jumping off point to create your own list of annual review items. It might also include reviewing college savings accounts, beneficiaries, insurance needs, wills, and going through an aging parent's financial accounts.
Questions about the most effective money-saving moves for your situation? Contact 415 Group today.
Overall, everyone will have a different approach due to their unique tax situation. However, my biggest tip for saving the most money can apply to everyone: Keep your tax advisor informed. If you’re planning something or if something changes, make sure they know. They can help you prepare for any positive or negative impacts those planned – or unplanned – changes may have on your situation.
In regards to unplanned changes, we noticed a lot of people were surprised when their 2018 returns came back and they weren’t as expected. This happened because of tax law changes that can still have an affect on your 2019 return. If you’re concerned about what you might receive next year, talk to your tax advisor.
At 415 Group, tax projections are a big part of what we help our clients with. We want to make sure you get the most out of what we do, so we are always looking for ways to steer you in the right direction. For example, one of the tax law changes affected itemized deductions. Many people can no longer itemize, so we recommend they bunch their charitable contributions into one year instead of spreading the amount over a few years.
Another option we discuss with clients, and even businesses, is the possibility of accelerating expenses. An example is making a large purchase that was planned for January of next year in December of this year instead.
With changes happening to your situation and with tax laws, it’s good to keep different money-saving options in mind. Read through the list below to start thinking of some of ideas, and then reach out to 415 Group so we can help tailor a plan to your situation.