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Tax Planning: Prepare Now, Don’t Be Left Out In the Cold

A new year is approaching quickly. With all the shopping you’ll need to do for the upcoming Holidays, it’s easy to think that you won’t have time for tax planning. But fear not! I’m here to give you a few quick tips that could help ease your tax burden. So kick back, relax, and buy a bigger turkey. Your tax needs are in good hands.

Harvesting Capital Losses

The stock market, though volatile, performed quite well this year, which may have tempted you to sell some long-term securities. If this sounds like you, large capital gains and a tax burden might be in your future. However, there is still time to plan. Work with your financial planner and tax advisor to review your financial portfolio and see if you hold any securities that could be sold at a loss. These losses could help offset your capital gains!

Opportunity Funds

If harvesting losses seems unappealing to the investor in you, consider reinvesting your capital gains in an Opportunity Fund. Qualified investments in Opportunity Funds allow you to defer capital gains by investing in funds that make investments specifically in distressed communities to spur economic development and job creation. To learn more about these investments contact your financial advisor and take a more in-depth look in our article entitled Opportunity Zones: What’s in it for Marylanders?

Donating Appreciated Securities

If you planned to sell some of your appreciated publically traded securities to fund a donation to your favorite not-for-profit organization, it’s possible a sale of publicly traded securities will result in capital gains to you. This may lead to holding back funds from the sale to cover your tax liability. Working with your financial advisor and the organization directly could mean a tax deduction equal to the fair market value of the security with the added benefit of not paying any tax on the unrealized gain. A win for you and the charitable organization!

Here’s a bonus: consider stacking your charitable contributions every other year. Then make a double donation again in 2021. Stacking these deductions may increase your tax deductions in the long run. To learn more about this option, read Optimizing Charitable Contributions.

Maximize Tax Deferred Retirement

As long as you have the room in your personal budget, make sure you are contributing the maximum amounts to your 401(k) retirement account. When it comes to IRAs, contributing to an IRA or Roth IRA may also provide current or future tax benefits. Consult your tax advisor on whether an IRA contribution is right for you. The bottom line: no current tax is due on these contributions and they are a great way to lower your 2019 tax burden.

Establish a Simplified Employee Pension

Do you run your own business and have a small number of employees? If so, self-employed Schedule C Business owners should consider maximizing their contribution to the simplified employee pension (SEP) or setting one up before the year ends if they haven’t already. If you already have employees, contributions must also be made to their accounts. Deposits may be made after year-end as long as they are made by your tax return due date.

Health Savings Account

Unlike other health spending accounts, you do not lose funds that you contribute to your HSA if you don’t use them. Some plans may even allow you to invest funds over a certain threshold. The maximum contribution to an H.S.A. for 2019 is $3,500 for individuals and $7,000 for families.

Year End Bonuses – Pass-through Owners Beware!

In the past, pass-through business owners may have taken year-end bonuses, either as a way to catch up on withholding or to reward themselves for a strong performance during the previous year. With the onset of the new tax law, the interplay between tax code Section 199A and wages is complex. In some cases, you may benefit more by paying an estimated tax versus withholding.

Of course, these topics only skim the surface of what should be a more in-depth conversation – and every situation is unique. Please consult with your tax advisor, accountant and/or financial advisor to find the solution that best fits your situation and long-term planning needs.

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