Year End Tax Tips
by John Cooney on Dec 18, 2019
As 2020 comes at us quickly, here are a couple year-end tax tips you will want to review before the ball drops!
Max Out Your Employer Plan
- If your company offers an employer-sponsored plan, you probably have one more chance to contribute in 2019. Contribution limits to an employer-sponsored plan (like the TSP, a 401k, 457, etc.) for 2019 are $19,000 for those under 50 and $25,000 for those 50 and older. Contributions can be pre-tax, which will lower your taxable income for the year.
Make an IRA Contribution
- If you have maxed out your employer sponsored plan contributions and still want to invest for your retirement, look at contributing to a traditional or Roth IRA. There are income limits on who can contribute or deduct a contribution to an IRA, so check with a financial planner to see if you are eligible.
- In 2019, the maximum you can contribute towards an IRA is $6,000 for those under 50 and $7,000 for those 50 and older.
Max Out Your Contribution to a Health Savings Account (HSA)
- Certain health care plans qualify you for contributing to an HSA. HSAs are a great savings vehicle to help pay for current and future medical expenses.
- If you qualify for an HSA, you can contribute up to $3,500 for individuals and $7,000 if it is a family plan.
- Contributions to an HSA are tax-deductible, so if you have an account and are eligible to make contributions, you still have time to lower your taxable income by contributing in 2019.
- Determining eligibility and contribution amounts can be a little tricky, so make sure you are working with a professional to ensure you are eligible.
- If you expect to itemize your deductions for 2019, you still have time this year to make a charitable contribution, which can also help lower your tax liability for the year. It is important to remember though, making the contribution alone doesn’t allow you to take the deduction, your contribution must be received by the organization. If you are donating by check, the check would need to be cashed in 2019 in order for you to take the deduction in 2019.
- Taxpayers who are likely to itemize are those that have made large charitable contributions, hit the maximum on the State and Local Tax, have a large mortgage, and high medical expenses.
- In 2018, only 10% of taxpayers itemized, so again, before you make a large charitable donation for tax purposes you will want to ensure you have a good idea of how likely you are to itemize in 2019.
Take Your Required Minimum Distribution (RMD)
- If you are over 70 ½ and you have a pre-tax plan, like a 401k or a traditional IRA, it is likely that you are required to take a distribution from that account.
- If you inherited one of those plans from someone other than your spouse, you likely have to take an RMD as well, regardless of your age.
- December 31st is the deadline for RMDs that are due in 2019, but don’t wait. Many custodians are very busy at the end of the year and may require you to request the distribution earlier to ensure it is out of your account on the 31st.
- Not everyone has to take an RMD and there are multiple rules surrounding the amount that needs to be taken, which varies based on your age, amount in the account, and type of account. If you aren’t sure whether you have to take an RMD or not, reach out to a financial planning professional who can hep you through the process.
Proper tax-planning is not a seasonal sprint, it is a year long marathon, and even as 2020 fast approaches, you still have some room to finish your 2019 race!
What Are Your Year-End Tax Questions?