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As we near the end of another year it is time for our annual income tax planning reminder letter. In the last two years we have seen many tax changes that may have reduced some deductions, increased others and dramatically changed your tax return. There are still a number of tax planning tools available.


  • America’s #1 tax shelter continues to be deferring the maximum amount the IRS allows to your 401-k this and every year. Because employers are required by law to match a portion of your own deferral, this is a tax deduction with free money!


  • 41% of American W-2 employees will be covered by a health savings account at work. If your employer does not deposit the maximum amount allowable into this plan, you have until April 15,2020 to add the remaining amount (up to the 2019 maximum) to this, the 2nd best tax planning move of all time. The contributions are deductible whether you itemize deductions or not.


  • Fewer Americans are able to itemize deductions because of the huge benefit received from the increased standard deduction. That doesn’t mean that you still can’t do anything though. One simple tool to get the best “bang for your buck” would be to practice what we call bunching of charitable contributions. For example, if you give a certain amount to charities each year, and if it’s financially feasible, you might consider doubling up this year on your contributions rather than spreading the contributions over a two-year period.


  • You could also consider using a donor advised fund. You are able to set aside several years of contributions with a current deduction.  You can then distribute the funds over as long a time as you wish.


  • If you are over 70 and ½ and have an IRA you should not be writing checks to charity, instead you should be using the “Direct IRA to charity” tool to avoid tax issues while qualifying for the required distribution rule.


  • Because there is no longer any deduction for work related expenses you must carefully read your employer’s handbook to see if they offer a reimbursement program for job-related expenses like licenses, dues, uniforms, supplies, etc.


  • Year end is a good time to review your stock portfolio to see if you might want to divest yourself of stocks that have lost value since you originally bought them.


  • If you are considering selling some old stock investments you might want to consider giving them directly to charity and avoiding writing checks to charity because you are able to deduct the full fair market value of the stock you give away in most cases.


  • This year the IRS and Congress have become very concerned about crypto-currency (like Bitcoin) and you must be certain to report any of these transactions. There is even a new question on your 2019 tax return asking about it.


  • Remind yourself that your Social Security benefit is based on your highest 35 years of earnings, so taking some time away from the workforce, or aggressively writing off business expenses can really have a long-term negative effect on retirement benefits.


  • Finally, if there is going to be a dramatic swing in your taxable income or your life circumstances between 2019 and 2020, it may make sense to either: (1) accelerate income into 2019 and defer deductions into 2020, or (2) accelerate deductions into 2019 and defer income into 2020.