Tax tips

Tax planning strategies for the final two weeks of the calendar year

Items to be aware of:

  • The tax law of 2017 significantly limited itemized deductions such as state and local taxes. The new law caps the deductibility of those state and local taxes at $10,000. This change surprised many taxpayers last year.
  • The 2017 law also reduced the deductibility of mortgage interest for loan balances above $750,000. This limit only affects loans taken out after the law was passed in mid-December 2017. You might have refinanced an existing loan that will be affected by this law. 
  • The law eliminated other common deductions such as investment advisory and tax preparation fees. There are additional lost deductions such as home equity line of credit interest for debt not related to the improvement of your home.
  • The law also increased the standard deduction, making it harder for many people to itemize charitable giving deductions. The new standard deduction for 2019 for a married couple is $24,400. 
  • 2019 was an above average year for most equity investments. Investors may find that they have more capital gains to report on their tax returns than they did in 2018. Many options to lower taxable income, such as harvesting losses in your portfolio or making charitable gifts, must be exercised during the calendar year.

Some ideas to consider:

  • If you were unable to itemize your deductions last year, the same may be true this year. There are other ways to make a charitable gift that still provide some tax savings.
    • Give away appreciated stock, allowing you to transfer the unrealized gain to the nonprofit organization.
    • If you are over 70 1/2, you can make a qualified charitable distribution directly from your IRA. While you can’t deduct the value of the gift, you are giving away pre-tax dollars.
    • Combine multiple years of giving into one tax year to make sure that you can itemize the deductions. For example, make one big gift now to represent two or three years so you have a better chance to itemize this year.
  • Consider gifting appreciated stock instead of cash. Your gift is generally fully deductible, but you also avoid paying the income tax on the capital gain that you had in the stock (if you had simply sold it). 
  • Taxpayers over 70½ might benefit from using qualified charitable distributions from an IRA with regards to Medicare premiums. Those premiums are based on income from the prior year, and the qualified charitable deductions may be used to satisfy your required mandatory distribution without increasing your taxable income. 

Discuss with your CPA or financial advisor.