Year-end tax planning will be just as complicated as it was last year due to the complexity of new tax regulations for businesses and individuals. This is of the essence as tax planning strategies to reduce your 2019 tax bill must be taken before year end.
Take advantage of planning strategies for individuals
Individuals often can reduce their tax bills by deferring income to the next year and accelerating deductible expenses into the current year. To defer income, for example, you might ask your employer to pay your year-end bonus in early 2020 rather than in 2019.
To accelerate deductions, consider increasing your IRA or qualified retirement plan contributions to the extent that they’ll be deductible. Such contributions also provide some planning flexibility because you can make 2019 contributions to IRAs, and certain other retirement plans, after the end of the year.
Other year-end tax planning strategies to consider include:
Offsetting capital gains. If you sold stocks or other investments at a gain this year — or plan to do so — consider offsetting those gains by selling some poorly performing investments at a loss.
Reducing capital gains is particularly important if you are subject to the net investment income tax (NIIT), which applies to taxpayers with modified adjusted gross income (MAGI) over $200,000 ($250,000 for married couples filing jointly). The NIIT is an additional 3.8% tax on the lesser of 1) your net income from capital gains, dividends, taxable interest and certain other sources, or 2) the amount by which your MAGI exceeds the threshold.
In addition to reducing your net investment income by generating capital losses, you may have opportunities to bring your MAGI below the applicable NIIT threshold by deferring income or accelerating certain deductions.
Charitable giving. If you plan to make charitable donations, consider donating highly appreciated stock or other assets rather than cash. This strategy is particularly effective if you own appreciated stock you would like to sell but you don’t have any losses to offset the gains.
Donating stock to charity allows you to dispose of the stock without triggering capital gains taxes, while still claiming a charitable deduction. Then you can take the cash you’d planned to donate and reinvest it in other securities.
Contact your trusted advisor to discuss end of year planning for you and your business.