What planning issues should I consider before the end of the year?

As 2019 draws to a close, we have included our “What Planning Issues Should I Consider Before the End of The Year?” checklist.  If you have experienced any changes with your finances or if you would like to discuss any of these items in greater detail, please feel free to contact your wealth advisor.

ASSET & DEBT ISSUESYESNO
Do you have any unrealized investment losses?

If so, consider realizing losses to offset any gains and/or write off $3,000 against ordinary income.

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Do you have investments in taxable accounts that are subject to end-of-year capital gain distributions?

If so, consider strategies to minimize tax liability.

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Did you inherit an IRA or 401(k) from someone who passed away last year, but haven’t split the account yet (assuming there were multiple beneficiaries)?

If so, consider splitting the account prior to the end of the year can avoid calculating the Required Minimum Distribution (RMD) based on the oldest beneficiary’s life expectancy.

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Are you over the age of 70 1/2 or do you have an Inherited IRA and are taking Required Minimum Distributions (RMDs)?

If so, consider the following:

  • RMDs from multiple 403(b)s can be aggregated.
  • RMDs from multiple IRAs can be aggregated.
  • RMDs from inherited IRAs must be taken separately. They cannot be aggregated with other traditional or inherited IRAs.
  • RMDs from an employer retirement plan must be taken separately. They cannot be aggregated with other employer retirement plans.
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TAX PLANNING ISSUESYESNO
Do you expect your income to increase in the future?

If so, consider the following strategies to minimize your future tax liability;

  • Make Roth IRA contributions and convert traditional IRAs to Roth IRAs.
  • Consider after-tax 401(k) contributions if offered by your employer plan.
  • If you are over the age of 59 1/2, consider accelerating IRA withdrawals to fill up lower tax brackets.
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Do you expect your income to decrease in the future?

We can explore strategies to minimize your tax liability, for example,  traditional IRA and 401(k) contributions instead of Roth IRA and Roth 401(k) contributions.

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Do you have any losses for this year or carry forward from prior years?

If so, consider the following:

  • There may be tax-loss harvesting opportunities.
  • You may be able to take the loss or use the carry forward to reduce taxable income by up to $3,000.
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Are you on the threshold of a tax bracket?

If so, consider strategies to defer income or accelerate deductions and strategies to manage capital gains and losses to keep you in the lower bracket. Consider the following important tax thresholds:

  • You are in the 24% marginal tax bracket if your taxable income is as follows: $84,201-$160,725 if Single / $168,401-$321,450 if MFJ. Taxable income above this bracket will be taxed at 32%.
  • If taxable income is at or above $434,550 if Single/$488,850 if MFJ, any capital gains will be taxed at the higher 20% rate.
  • If your modified adjusted gross income (MAGI) is over $200,000 if Single/$250,000 if MFJ, you may be subject to the 3.8% Medicare surtax on the lesser of net investment income or the excess of MAGI over $200,000 if Single/$250,000 if MFJ.
  • If you are on Medicare, consider the impact of Medicare’s income-related monthly adjustment amount (IRMAA) surcharges.
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Are you charitably inclined and want to reduce taxes?

If so, consider the following:

  • If you expect to take the standard deduction of $12,200 if Single/$24,400 if MFJ, consider lumping your charitable contributions every few years which may allow itemization in specific years.
  • If you are over age 70 ½ and have an IRA, consider a qualified charitable distribution (QCD).  An individual can give up to $100,000 annually directly from their IRA to a qualified charity.  A QCD can count toward your required minimum distribution for the year.
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Will you be receiving any significant windfalls that could impact your tax liability (inheritance, RSU’s vesting, stock options, bonus)?

If so, review your tax withholdings to determine if estimated-payments may be required.

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Do you own a business?

If so, consider the following:

  • If you own a pass-through business, consider the Qualified Business Income (QBI) deduction eligibility rules.
  • Consider the use of a Roth vs. traditional retirement plan and its potential impact on taxable income and Qualified Business Income.
  • Consider if it makes sense to defer or accelerate business expenses to reduce overall tax liability.
  • Some retirement plans, such as a Solo 401(k), must be opened before year-end.
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Have there been any changes to your marital status?

If so, consider how your tax liability may be impacted based on your marital status as of December 31st.

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CASH FLOW ISSUESYESNO
Are you able to save more?

If so, consider the following:

  • If you have an HSA, you may be able to save $3,500 for a single person/$7,000 for a family and an additional $1,000 if you are over the age of 55.
  • If you have an employer retirement plan, such as a 401(k), you may be able to save more but must consult with the plan provider as the rules vary as to when you can make changes.
  • For 2019 the maximum salary deferral contribution is $19,000, plus the catch-up contribution if over the age of 50 of $6,000 per year.
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Do you have a 529 college savings plan?

If so, consider the following:

  • You can contribute up to $15,000 ($30,000 if a joint gift is made) per year to an individual without filing a gift tax return.
  • Alternatively, you can elect the five-year accelerated gift of $75,000.
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INSURANCE PLANNING ISSUESYESNO
Will you have a balance in your FSA before the end of the year?

If so, consider the following options your employer may offer:

  • Some companies allow you to roll up to $500 in your FSA account over to the next year.
  • Some companies offer a grace period up until
    April 15th to spend the unused FSA funds.
  • Many companies offer you 90 days to submit receipts from the previous year.
  • If you have a Dependent Care FSA, check the deadlines for unused funds as well.
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Did you meet your health insurance plan’s annual deductible?

If so, consider incurring additional medical expenses before the end of the year at which point your annual deductible will reset.

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ESTATE PLANNING ISSUESYESNO
Have there been any changes to your family/heirs or have you bought/sold any assets this year?
If so, consider reviewing your estate plan.
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Are there any gifts that still need to be made this year?

If so, you can make gifts up to $15,000 ($30,000 if a joint gift is made) per year to an individual without filing a gift tax return.

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JULIE HALL, CFP®, MSF
Director of Financial Planning

 

 


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