As the end of the year approaches, it is a good time to think of planning moves that will help lower your tax bill for this year and possibly the next. Year-end planning for 2019 takes place against the backdrop of recent major changes in the rules for individuals and businesses.
Changes to Business Tax Laws
- the corporate tax rate has been reduced to 21%,
- there is no corporate AMT,
- there are limits on business interest deductions,
- and there are very generous expensing and depreciation rules.
- And non-corporate taxpayers with qualified business income from pass-through entities may be entitled to a special deduction.
Changes to Individual Tax Laws
- lower income tax rates,
- a boosted standard deduction,
- severely limited itemized deductions,
- no personal exemptions,
- an increased child tax credit,
- and a watered-down alternative minimum tax (AMT).
- Entities other than corporations – review opportunities to maximize the Qualified Business Income Deduction
- Consider accelerating expenses and deferring income
- “Small Business” may benefit from a cash basis versus an accrual basis accounting providing greater control of income timing.
- Purchasing assets that will take advantage of increased expensing options, as well as Bonus Depreciation and De minimums Safe-Harbor elections.
- Offset a 2019 NOL by accelerating income from 2020.
- Dispose of passive activity if it will free up passive losses
- Pay employee bonuses in 2019.
Link here for details on Business Opportunities
- Defer income (such as bonuses) to stay in lower tax brackets or avoid Net Investment Income Tax or Medicare Tax.
- Manage capital gains to stay in lower brackets and harvest losses.
- Accelerate deductions to 2019 such as paying your January mortgage in December.
- Consider Traditional IRA to Roth Conversions or potentially leverage the “Back-door Roth” strategy
- Balance Standard Deduction years and Itemized Deduction years using a “bunching strategy”
- Take your Required Minimum Distributions from your retirement plans or use a Qualified Charitable Distribution. Consider timing if you turned 70 1/2 in 2019
- Review Flexible and Health Savings Accounts to claim expenses as well as 2020 contributions
Link here for details on Individual Opportunities
These are just some of the steps you can take to save taxes. The linked pages further detail these opportunities. Contact us to tailor a plan to your specific needs and situation.