Abstract: With the dawn of 2020 on the near horizon,
savvy taxpayers need to check off a few boxes to help ensure a more optimal
situation heading toward filing season in the spring. This article provides a
handy list of tax and financial to-dos to address before 2019 ends.
Year-end tax
and financial to-do list for individuals
With the dawn of 2020 on the near horizon, here’s a quick list of tax and
financial to-dos you should address before 2019 ends:
Check
your Flexible Spending Account (FSA) balance. If you have an FSA for health care expenses, you need to incur qualifying
expenses by December 31 to use up these funds or you’ll potentially lose them.
(Some plans allow you to carry over up to $500 to the following year or give
you a 2½-month grace period to incur qualifying expenses.) Use expiring FSA
funds to pay for eyeglasses, dental work or eligible drugs or health products.
Max
out tax-advantaged savings. Reduce
your 2019 income by contributing to traditional IRAs, employer-sponsored
retirement plans or Health Savings Accounts to the extent you’re eligible.
(Certain vehicles, including traditional and SEP IRAs, allow you to deduct
contributions on your 2019 return if they’re made by April 15, 2020.)
Take
required minimum distributions (RMDs). If you’ve reached age 70½, you generally must take RMDs from IRAs or
qualified employer-sponsored retirement plans before the end of the year to
avoid a 50% penalty. If you turned 70½ this year, you have until April 1, 2020,
to take your first RMD. But keep in mind that, if you defer your first
distribution, you’ll have to take two next year.
Consider
a qualified charitable distribution (QCD). If you’re 70½ or older and charitably inclined, a QCD allows you to transfer
up to $100,000 tax-free directly from
your IRA to a qualified charity and to apply the amount toward your RMD. This
is a big advantage if you wouldn’t otherwise qualify for a charitable deduction
(because you don’t itemize, for example).
Use
it or lose it. Make the most of
annual limits that don’t carry over from year to year,
even if doing so won’t provide an income tax deduction. For example, if gift and estate taxes are a concern, make
annual exclusion gifts up to $15,000 per recipient. If
you have a Coverdell Education Savings Account, contribute the maximum
amount you’re allowed.
Contribute
to a Section 529 plan. Sec. 529
prepaid tuition or college savings plans aren’t subject
to federal annual contribution limits and don’t provide a federal income tax
deduction. But contributions may entitle you to a state income tax deduction (depending on your state and plan).
Review withholding. The IRS cautions that people with more complex tax situations face the possibility of having their income taxes underwithheld because of changes under the Tax Cuts and Jobs Act. Use its withholding estimator (available at https://www.irs.gov/individuals/tax-withholding-estimator) to review your situation.
If it looks like you could face underpayment penalties, increase
withholding from your or your spouse’s wages for the remainder of the year. (Withholding,
unlike estimated tax payments, is treated as if it were paid evenly over the
year.)
For assistance with these and other year-end planning ideas, please
contact us.
© 2019