2019 Tax Planning Tips

Tax regulations and laws see significant changes every few years and even small ones on a year to year basis. It’s no wonder that doing taxes can be an overly complicated process. The most frustrating part about doing taxes is that even the smallest mistake could mean paying thousands of dollars more. Conversely, not understanding all of the tax laws can lead to an individual or business missing out on thousands of dollars in tax savings. Moreover, not being fully prepared when it comes to tax planning could mean owing money when it could be avoided.

Since 2018 there have been notable changes in federal tax regulations. While doing your taxes is often an arduous process, the good news is that there are steps that can be taken to ensure that you are paying the least amount of money possible, which puts more money in your pocket. If you haven’t been good about tax planning in past years, then now is the time to start!

1. Start Planning NOW! Do not procrastinate when it comes to taxes. This is the main reason that many individuals and businesses miss out on thousands of dollars in tax savings each year and often end up owing money to the government. Many tax saving strategies can be implemented throughout the course of the year. However, as the end of the year approaches your options and ability to take advantage of them diminish.

In many cases the longer you can apply your tax savings strategies the more you can reduce your tax exposure. If you want to minimize your tax liability and improve your financial well-being, you should really be thinking about taxes sooner in the year when you still have time to make significant tax planning decisions. The best thing you can do is to work with a tax and financial expert during the course of 2019 in anticipation for filing in early 2020. In other words, don’t be like most people that wait until the last minute on April 15^th or file late. Instead, stay ahead of game and be prepared. The best way to do so is to work with a tax expert.

2. Advantage to First Time Home Buyers. A little known tax benefit is the ability of first time home buyers to withdraw up to ten thousand dollars from their IRA accounts without penalty. The IRS defines that status rather loosely. You are considered a first-timer if you (or your spouse) haven’t owned a home at any point during the last two years. So even if you possessed a principal residence at some point in the past say, five years ago, you may well meet the first-time-buyer requirement. The key word, by the way, is “principal.” If you’ve owned a vacation home or taken part in a time-share during the last two years, the exemption can still apply. It is also looking increasingly likely that 2019 could see a dip in housing prices, which might be the opportune time to buy. Your IRA, however, likely will not increase much in value since the stock market is near the top. Therefore, you might be better off taking 10k of your retirement account and investing it in your first home. A tax free withdrawal for an IRA can represent well over three thousands dollars to you and even more if you are in a higher tax bracket!

3. Don’t get Stuck owing Money–Check Your Withholding Status. Protect yourself from an end of the year tax liability surprise. Do a withholding checkup to determine if you need any changes now. There is still plenty of time to make up any shortfall of withholding.” Lax tax rates have changes and many of us have gotten an unexpected tax bill at the end of the year. Consult with your accountant to see if you are withholding the optimal amount. You can look at the official IRS tax calculator to find out for yourself. Most importantly, you don’t want to find out in early 2020 that you didn’t pay enough taxes in 2019 and now suddenly you are stuck with a large tax bill. Whether you are an individual or a business, having a daunting tax bill at the beginning of your new year can really put a damper on your financial outlook for the rest of that year. Many taxpayers were badly hurt when the tax fund they were expecting (and used to) suddenly turned into a tax bill. Don’t let this happen to you.

4. Big Savings for Self-Employed. Be sure you are maximizing the advantages of business ownership by structuring your business as a S-Corporation. The best advantage of setting up a S-Corporation is that you no longer have to pay the 15.3% self-employment tax. Plus, you can write off your salary from the taxable ‘pass throughs’ which you pay taxes on. Did you know that if you pay your children for work you are not required to withhold Social security or Medicare? Big savings for you! My advice is to worked a tax and financial expert to set up a S-Corporation and take advantage of potential savings, which will ultimately maximize your annual income.

5. New Opportunities in 2019 for IRA Contributions. The changes aren’t drastic, but worth considering. The IRS has increased 401K contribution limits and similar work retirement plans, including IRAs by $500 each. From 2019, you can now contribute $19,000 into a 401k and up to $6,000 to an IRA. Unfortunately, ‘Catch-up contributions, which allow those individuals 50 and older to make additional tax-free contributions beyond the annual limits remain unchanged.

6. Use tax stock lots sales strategy to minimize capital gains on the sale of stocks. A stock lot, share lot or tax lot refers to a group of shares of stock that you bought at the same time. Picking out a particular set of shares to sell first may affect your tax bill, since you generally pay capital gains tax based on how much the shares went up or down and how long you’ve owned them. If you do not specify tax lot sales you will default to First in First Out (FIFO) . This can be the least desirable from a tax consequence as stocks bought at an earlier date tend to have the highest gains.

7. Managing Capital Gains. If your taxable income is above $55K and you decide to sell your stocks, it is better to only sell the stocks you have owned for at least one year. The Capital gains Tax will be less than your regular earnings rate. If you sell a stock that you have owned for at least one year, you only have to pay the long-term capital gains tax, which is 15%. Although 15% might seem high, it is still a much better rate than the short-term capital gains tax, which is essentially the same rate as your income tax. See the chart below. If you are in the higher income bracket, the capital gains tax is 20%, which is much lower than your normal tax rate.

Stocks, Bonds, Mutual Funds	Income $0-$38,600	Income $38,601-$425,800	Income $425,800 and higher
Qualified Dividends	0%	15%	20%
Short-Term Capital Gains	ordinary tax bracket	ordinary tax bracket	ordinary tax bracket
Long-Term Capital Gains	0%	15%	20%

Follow these tips to not only save money, but also in effort to avoid having to pay extra money to the IRS. Most importantly, it is always best to begin early. Contact one of our tax and financial experts today to get a head start on your 2019 taxes!.