The end of year 2019 is rapidly approaching. For financial advisors and their clients this means it’s time for clients’ income tax planning. The 2018 Form 1040s are a natural starting point for advisors to identify tax planning strategies for 2020. For DIY readers who haven’t made any tax saving moves yet, however, there are still some time to do so by the end of 2019. Of course, everyone’s tax situation is different. In this article, I will just list some of the strategies.
2019 is the second year when Tax Cuts and Jobs Act has gone into effect. Because standard deduction is much higher under the new tax law, this eliminates the need for itemized deductions for many families. According to Tax Foundation, 10% of the population itemized deductions in tax year 2018 vs. 30% itemized deductions in tax year 2017. But, if you can still itemize your deductions, and you own a home and have paid your property tax at the beginning of 2019, you may want to pay off your 2020 property tax by the end of this year. That way you will have bigger amount of property tax deduction on your 2019 tax year return when you itemize.
Another area to look for saving taxes is your tax-deferred retirement contributions. Some readers may have forgotten to adjust their contributions at the beginning of each year after IRS raised qualified retirement contribution limits for that year. Even if you cannot or do not want to contribute to the maximum limit, bumping up your contributions a bit more still helps. Now is the time to play catch up.
Americans are generous, especially during holiday season. Many made charitable givings every year. If you are considering making some charitable gifts to your favorite cause(s) again this year, and if you didn’t itemize on 2018 tax year return, consider bunching strategy of combining multi-year charitable givings into one tax year. Bunching may make the amount of charitable giving large enough for you to exceed the standard deduction during the year you use this strategy.