December 2019 Boerne Business Monthly Article
written by ADKF’s Valerie J. Brauner, CPA, CCGMA
With the end of the year upon us, most people are focused on celebrating the holiday season with family and friends. However, the end of the year is also a great time to consider what might be changing when it comes to your taxes as well as determine if some steps taken now, could minimize your tax liability on your upcoming tax returns. The following are a few items to be aware of and consider before the end of the year:
Standard Deduction: The standard deduction for 2019 is $12,200 for single taxpayers and $24,400 for those married filing jointly. If your itemized deductions are close to this threshold, consider making additional expenditures before year-end in order to exceed this threshold. Also, bundling your expenses in a given year and taking the standard deduction in the next year may also be a strategy you wish to implement.
Capital Gains and Losses: Capital losses are limited to $3,000 per year or $1,500 if married filing separately. If you have significant capital losses in 2019 or a carryover loss from a prior year, consider selling some investments at a gain before the end of the year to offset those losses.
Gifting Securities: If you plan to utilize the annual gift exclusion of $15,000 for 2019 to someone in a lower tax bracket, consider gifting them appreciated securities rather than cash. If their taxable income is less than $39,375 for single taxpayers or $78,750 for joint filers, they can take advantage of the 0% income tax rate on long-term capital gains.
Charitable Gifting of Securities: If you plan to gift securities to your favorite charity, make sure you gift appreciated securities thereby avoiding paying tax on the capital gains. If, however, you hold securities that have decreased in value, sell them first and then donate the cash so that you can take advantage of the losses on your return.
Consider Converting to a Roth IRA: If you expect to be in the same or a higher tax bracket upon retirement, taking the tax hit now may be beneficial to avoid paying taxes on the income at retirement when you are in a higher tax bracket.
Consider Estate Planning: If you haven’t updated your estate plan since the passage of the Tax Cuts and Jobs Act (TC&JA), now is a great time to contact your trusted advisors to discuss if an update is necessary. The TC&JA increased the unified federal estate and gift tax exemption to $11.4 million per person in 2019 and $11.58 million per person in 2020.
Establish a Retirement Plan: If you don’t currently have an employer-sponsored retirement plan, now may be the time to implement one. Deductible contributions for 401(k) IRA’s increased from $19,000 in 2019 to $19,500 for 2020. For SIMPLE IRA plans, the deductible contribution limit increased from $13,000 for 2019 to $13,500 for 2020. Additional catch-up contributions are allowed for those 50 and over.
Depreciation: Consider if purchasing and placing in service fixed assets before the end of the year would be beneficial for you. For 2019, new and used property with a tax life of less than 20 years is deductible via bonus depreciation. For qualifying property, taking the section 179 deduction may also be an option.
Timing: Consider deferring income and accelerating expenses at year-end if you expect to be in the same or a lower tax bracket next year. If, however, you expect to be in a higher tax bracket next year, you may want to consider accelerating income into the current year in order for it to be taxed at a lower rate.
Qualified Business Income Deduction (QBID): New in 2018, this deduction allows for a 20% deduction for qualified business income subject to various limitations. This deduction should certainly be considered in your year-end tax planning as many variables can affect the amount of deduction you can take. Please consult your tax advisor regarding the calculation of this deduction.
Business Interest Expense: Also new in 2018, the TC&JA implemented a limitation on the amount of business interest expense that can be deducted by some taxpayers. Luckily, most small businesses are exempt from this limit however for those that are not, the limitation is equal to the sum of the business interest income, 30% of adjusted taxable income, and floor plan interest paid by certain vehicle dealers.
These are just a few items for you to consider before the end of the year. Many other planning opportunities are also available, so now is a great time to think about year-end tax planning and consulting with your tax advisor. Happy Holidays!READ MORE