At year-end, you may want to consider some of these planning opportunities:
14 Tips from Financial Planner, Jim Pilat, AIF
1. Consider Selling Losers - If you have capital gains in your Individual, Joint or Trust account consider protecting those gains by selling positions that are in the red. This will offset some of those gains and can lower your potential tax hit.
2. Go Green, Save Green - If you have done any solar or other renewable energy upgrades, don’t forget that you may be eligible for a 30% tax credit. This credit reduces to 26% in 2020 so act fast if you have any pending upgrades.
3. Business Purchases - If you are a small business owner remember that business related purchases can offset income. Make these purchases before year end will save you from paying income and self employment tax on those profits.
4. Check your Withholding - If you fear that you have not withheld enough income to cover your tax bill consider contacting HR and updating your W-4 to withhold an extra amount before the end of the year. Just remember to correct it back in January.
5. Consider a 529 Contribution - Many states, including MI have a state tax credit available for a contribution into a 529 college savings account. The contribution limit in MI is $10,000 so any amount less than that will be eligible.
6. Bunch Charitable Contributions - If your charitable giving does not exceed your standard deduction consider lumping multiple years giving into a donor advised fund. This may make you eligible to itemize that contribution in the year contributed and still maintain control of when you give the donation.
7. Donate Your RMD - If you are over 70 1/2 consider donating your RMD directly to a charity. Doing this will satisfy your RMD but not be taxable. It will lower your AGI which helps keep down the amount of income used to compute Medicare part B premiums.
8. Max Out HSA - Individual limit is $3,500 and Family is $7,000. You actually have until April 15th to make a contribution for 2019. Remember HSA are triple tax free. It will reduce your income today, grow tax deferred and withdrawal tax free if used for a qualified medical expense.
9. Maximize 401(k) contribution - Limits for 2019 are $19,000 for those under 50 and $26,000 for those over. If you are below that limit, consider raising your contribution for the end of the year to get in as much as possible. Some employers will let you contribute as much as 100% of your pay.
10. Don’t Forget About the Roth - Even though you won’t get a tax deduction now, don’t forget about the powerful benefits of a Roth. Tax free growth and withdrawals in retirement. Contribution limits are only $6,000 or $7,000 for those over 50 so make sure you get it in every year you can.
11. Childcare Tax Credits - The cost of childcare can result in a tax credit for some taxpayers. Don’t forget about summer and winter camps that were used as childcare while the parents worked.
12. Make Multi-Year Tax Projections - Looking ahead may help make decisions on when to take advantage of business deductions or bunching charitable donations.
13. Consider Roth IRA Conversions - If you find yourself in a lower tax bracket due to recent retirement or simply a low income year, consider converting traditional IRA money into Roth IRA money. That money will now be tax free forever and will also reduce your RMD amount after 70 1/2 since Roth do not have and RMD rule.
14. Establish a Retirement Plan - If you are self employed and do not have a company retirement plan, there may still be time. Some types of plans will allow for 2020 contributions to count for 2019 as long as the plan is established in 2019.