2019 Year-End Tax-Saving Strategies

The year is winding down but there’s still time to take certain actions that can lower your tax bill for 2019. Here are 10 things you can still do:

1. Review withholding and estimated taxes

If you receive a year-end bonus, a distribution from a mutual fund, or other big income item you didn’t anticipate, be sure to factor the taxes on the item into your withholding and estimated taxes. For example, you can avoid underpayment penalties by asking your employer to withhold a lump sum from your final paycheck. If you don’t have a paycheck, be sure the final estimated tax payment for 2019, which is due on January 15, 2020, covers what you expect to owe in federal income taxes.

2. Use up FSA contributions

If you put money into a medical or dependent care flexible spending account (FSA) for 2019, you must use it or lose it. Check with the plan administrator to see whether there’s any grace period (e.g., to March 15, 2020) in which you can use up your 2019 contributions. For medical FSAs, find out whether there’s a carryover of up to $500 in lieu of a grace period.

Note: Before the start of the new year,  sign up for 2020 FSA salary reduction contributions if you have the opportunity to do so. The maximum medical FSA amount in 2020 is $2,750.

3. Sell losing securities

If your losses exceed your gains, sell enough securities to produce a capital loss in excess of capital gains of up to $3,000 ($1,500 if you’re married and file separately). These losses can offset ordinary income. If losses are greater, the excess losses will carry over for future years.

Note: Watch for the wash sale rule that bars a loss deduction if you acquire substantially identical securities within 30 days before or after the date of sale.

4. Make cash donations to charity

If you think you’re going to itemize deductions for 2019 rather than take the standard deduction, act now. If you charge contributions to a credit card by December 31, you can deduct them this year (up to 60% of your adjusted gross income) even though you pay the credit card bill in 2020. If you mail contributions before January 1, you can deduct them even though the charity cashes the check in 2020.

Remember to obtain required contemporaneous written acknowledgments from the organization(s) for any donation of $250 or more, plus receipts or canceled checks for smaller donations.

5. Use appreciated securities for charitable donations

Doing this allows you to avoid capital gains tax, while being able to deduct the value of the securities. This rule only applies to securities held for at least one year and a day.

6. Obtain last-minute medical care

Again, if you know you’re going to be itemizing and your out-of-pocket medical costs to date are near or over the 10%-of-adjusted gross income threshold, consider discretionary medical spending. Examples: prescription sunglasses, a year’s supply of contact lenses, the portion of a DNA collection kit used for determining medical conditions.

7. Prepay college tuition

If you have a student with a semester starting in January, February, or March 2020, paying tuition now entitles you to take the American opportunity credit on your 2019 return.

8. Set up a retirement plan for a gig activity

If you have a sideline business, you may save for retirement on a tax-advantaged basis. As long as you sign the paperwork for a 401(k) plan by December 31, 2019, you’ll be able to fund it by the extended due date of your 2019 return.

9. Take your RMD

If you’re age 70½ or older (or a beneficiary of an IRA or retirement account), don’t forget to take your annual required minimum distribution. If you attained age 70½ in 2019, you can delay your first RMD to April 1, 2020, but you’ll have to take your second RMD by December 31, 2020.

If you’re age 70½ or older, you can avoid tax on an RMD by transferring it directly to a public charity. The transfer, which counts toward your RMD, is tax free; no charitable contribution deduction is allowed. This is called a qualified charitable distribution (QCD). The annual limit on the QCD is $100,000.

Note: Pending legislation would postpone RMDs until age 72, but even if enacted it would not impact 2019; the new rule would begin in 2020.

10. Buy an electric powered motor vehicle

If you buy such a vehicle and begin to use it before the end of the year, you may be eligible for a tax credit.

Note: The credit for Tesla and GM vehicles has been phasing out. No credit will apply for a Tesla purchase after 2019; only a partial credit will be available for a GM vehicle purchased in the first quarter of 2020 and no credit thereafter.

Conclusion

Talk with your CPA or other tax adviser about other savvy tax moves you can make before 2019 is over.