Make Tax Time less taxing (Next Year)

As we prepare for tax season, it is a good idea to start thinking about how we can structure our finances, investments and charitable planning to give us a better outcome a year from now. The following are a few ideas we are discussing with our clients;


  1. Bunch your charitable giving. With a standard deduction for a couple at $24,000 and a state and local tax deduction limited to $10,000, many people will no longer be able to itemize. If you make $10,000 in annual charitable contributions, consider making a contribution of $30,000-$50,000 in one year to a donor-advised fund in your name. The fund can spread out your contributions over many years but you would receive the tax deduction in the year you make the contribution. The larger contribution would raise your itemized deductions and you could be rewarded for being charitable. One other small reminder—give away appreciated securities, not cash, to your donor advised fund or charity. Charities can sell those securities and pay no tax and you get the full deduction without having to take a capital gain!
  2. Start funding retirement plans. Qualified Retirement plans are still a great option to reduce business income. Even an IRA, for those who are eligible, can serve to reduce your taxable income.  A self-employed business owner over age 50 can defer up to $61,000 in income by using a combined 401k and profit sharing plan. Even young people should get into the game and consider the tax-free Roth IRA option. It will not help on taxes today but the funds will compound tax-free for a lifetime.
  3. Don’t forget your HSA contribution. To keep insurance premiums low, many people have moved to high-deductible health plans. If you have such a plan, you may fund a “Health Savings Account.” The limit for 2019 is $7,000 per family with an additional $1,000 contribution EACH for people over age 55.
  4. Consider tax free growth of assets. If you have investments that generate significant capital gains distributions (as many mutual funds do) consider redeploying those assets into a cash value insurance product that can provide tax-free retirement income. While often confused with annuities, these products can accumulate rapidly with tax-free growth by investing in securities that are similar to mutual funds. It’s a little known loophole that can be highly lucrative for high bracket taxpayers.

While most of our opportunities to reduce 2018 taxes have passed, we have plenty of time to get our plans in order for 2019.  Pay your fair share, but you are entitled to all of the advantages the tax law allows.

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