GRAND RAPIDS, Mich. — Each year, Tax Day happens on April 15 but for some -- there are surprises that creep up.
Chris Harper, CPA, MBA, with Hungerford Nichols, joins My West Michigan Monday, Nov. 18 to share everything you need to know to avoid those tax surprises.
Look at the Big Picture
Evaluate strategies for 2019 while considering implications for 2020. You should strive to legally minimize income taxes and avoid surprises.
Impact of the Tax Cuts and Jobs Act (TCJA)
Several significant changes went into effect for the first time in tax year 2018. Relatively few things changed in 2019. Most differences are just annual adjustments in amounts for inflation; although some amounts remained unchanged.
- Tax rates stay the same in 2019 with slightly higher income thresholds than in 2018.
- The child tax credit stays at $2,000 per child.
- Alternative Minimum Tax (AMT) exemptions increased slightly.
- The floor on the percentage of income for the deduction of medical expenses is now 10%.
- The deduction for personal exemptions is still gone.
- Itemized deductions for state and local income taxes are still capped at $10,000 per year.
- Itemized deductions for mortgage interest are still limited for loan balances in excess of $750,000.
- Keep an eye on developments as we draw closer to the 2020 presidential election.
Last-minute Amounts
Does it make sense to postpone income until 2020 or accelerate deductions into 2019? Consider doing the following things:
- Make final deductible payments (mail check or charge on a credit card by December 31).
- Consider non-cash charitable contributions.
- Maximize 401(k) or similar retirement plan contributions
Would it be beneficial to accelerate payments for real estate taxes, state/local income taxes and/or your January mortgage? As you draft strategies, keep AMT in mind. For example, state and local taxes are disallowed for AMT purposes.
- Contribute to a 529 college savings plan?
- Are any funds left in a Section 125 flexible spending account?
- Consider the applicability of making gifts up to the $15,000 annual gift tax exclusion per recipient.
- Analyze non-qualified investments to determine if it makes sense to dispose any of them.
You may be able to generate deductible losses while preserving much of your original portfolio by selling securities and repurchasing them at least 31 days later. Don’t forget about possible capital loss carryovers available from 2018.
Bunching Itemized Deductions?
This may be beneficial if your itemized deductions are roughly the same as the standard deduction available to you. The 2019 standard deductions will be $24,400 for a joint return, $12,200 for single and $18,350 for head of household. You may be able to adjust timing of itemized deduction payments to maximize your deductions.
Consider Changes in Life Status
Did your marital status change during 2019?
There is a big change in the treatment of alimony payments. For divorce agreements finalized by the end of 2018, alimony is deductible by the payer and included in income for the recipient. For divorce agreements finalized on January 1, 2019 and later dates, alimony is not deducted by the payer and is not included in the recipient’s income.
- Were any children born this year? Did any children get married?
- Did you experience a death in the family?
- Was there a change in your employment status?
- Will you or a dependent begin or end college education soon?
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