Year-end tax strategies for individuals
Contribute the maximum amount to a retirement account.
In addition to reducing your taxable income for the year, retirement accounts can grow substantially since they compound over time.
Try to contribute the maximum amount of money allowed ($19,000 for 2019, $25,000 if you are age 50 or over). If you can’t afford that amount, try to contribute at least the amount that will be matched by employer contributions.
Also, consider contributing to an IRA. The deadline for making an IRA contribution for 2019 is April 15, 2020. You or your spouse may be able to contribute to an IRA. The limit to an IRA is a maximum of $6,000 to an IRA for 2019, and an extra $1,000 if you are 50. However, your ability to contribute to an IRA depends on whether you or your spouse are eligible for a retirement plan at work if you are employed.
Consider bunching deductions.
The standard deduction for 2019 is $24,400 if you are filing married jointly ($12,200 if filing single). For people who don’t quite have enough deductions to itemize, bunching deductions in one year may benefit them. As an example, suppose you tried to itemize in 2018 but came up with a little less than the standard deduction. You may be able to itemize in 2019 if you pay your 2020 property taxes a year early. Another adjustment could include making your January 2020 mortgage payment in December of 2019. Some of the donations you normally make in 2020 could be made in 2019. Purchasing vehicles in the year you planned to itemize, could also increase your itemized deductions. If it is possible to time surgeries or major dental work, this may increase your deductions in the year you itemize.
Consider selling stock that is not doing well for a loss.
However, keep in mind that the maximum deductible loss per year is $3,000 per year ($1,500 if married filing separately). Any loss that exceeds the maximum allowable deduction for the year will be carried forward to future years.
Check any flex plans you may have at work.
These are fringe benefits companies offer that let employees use to pay child care or medical bills. The catch to flex plans is the “use it or lose it” rule. It requires deciding at the beginning of the year how much to contribute to the plan. If you don’t use it all by the end of the year, you will lose the excess.
Check to see if your employer has a grace period permitted by the IRS, which allows employees to spend set-aside money as late as March 15, 2020. If not, make a last-minute trip to the drug store, dentist or doctor to use up the funds in your account.
David Zubler is a tax accountant in East Tennessee, the author of four books, and a philanthropist. All of his proceeds from the books go to a charitable foundation he created for underprivileged children. He is also the founder of Your Tax Care which provides tax education. David can be reached for questions and consultation at yourtaxcare.com.