With the end of the year right around the corner, now is a great time to start planning ahead for tax time and making sure that you have put yourself in a good position for next April 15. Below we offer a few options to consider that may help make tax time a bit easier in 2020.
Maximize the value of your retirement accounts:
While the deadlines for contributions to your retirement funds vary, there is still time to make additional contributions that may help you to reduce your 2019 taxes. You have until December 31, 2019 to contribute to a 401(k), and you can contribute to your IRA until April 15, 2020. For anyone hitting age 50 or older during this calendar year, you can also take advantage of “catch-up” contributions that allow you to add extra money to these accounts. These “catch-up” contributions have limits of up to an extra $6,000 for a 401(k) and $1,000 for an IRA.
Assess your stock portfolio:
A good review of your holdings at this time of year can allow you to identify assets that aren’t delivering the results you are hoping for. If you find yourself with shares of a stock that haven’t seen growth and that you don’t think will improve with the new year, now may be a good time to sell. Taking a loss on a stock sale now could provide you with a capital loss that you can use to offset the gains realized in a higher-performing stock asset. If your overall portfolio hasn’t yielded capital gains for you this year, it is also possible to deduct capital losses from your ordinary income. The deductions are generally $3,000 or $1,500 if married and filing separately.
Consider a 529 education savings plan:
These plans allow you to set aside money for use in paying for educational costs for a beneficiary of any age. Under current tax laws, these funds can be used not only to cover college and post-secondary education, but now they can also be used to pay for up to $10,000 of tuition annually for public, private or religious elementary and secondary schools. The beneficiaries of these funds can be changed at any time and it is possible to be your own beneficiary. These funds are most effective when they are given time to grow, so consider starting one now if additional education down the road is something you are thinking of for yourself or if you think that kids may be in your future.
Compare itemized and standard deduction options:
The Tax Cuts and Jobs Act greatly increased the standard deduction from $12,700 in 2017 to $24,000 in 2018 and $24,400 in 2019 for those married filing jointly ($6,350 in 2017 to $12,000 in 2018 and $12,200 for single or married filing separately). This, along with other changes designed to simplify the tax code such as the $10,000 cap on property, state and local income tax deductions, means that you may want to reconsider whether itemizing makes sense for your situation. Consulting with a tax professional can help you sort out what makes the most sense for your financial situation.
Take your Required Minimum Distributions:
If you are 70.5 years old or greater, be sure that you have taken your required distributions from your retirement accounts as the penalties for failing to do this are severe. The deadline for the complete withdrawal is December 31, 2019. The amount you are required to take is a based on a combination of your age and the account balance as of December 31, 2018. If you are uncertain of your status on this, be sure to check with your accountant to make sure you are current and to avoid messy clean-up later.
Review your withholding:
While it is especially important for anyone that may have changed jobs or marital status in 2019, everyone can benefit from reviewing their current withholding status. Learning today whether you have contributed enough from your paychecks to cover your income tax on standard earnings can help you get a glimpse of what you may owe come April. The IRS provides an online calculator to help you determine your status. It will also allow you to look ahead and make decisions now about what your withholding should be for 2020.