- Whether you’re behind on your income tax withholding for the year or you’re digging for deductions, now is the time to act.
- There’s still time to save more money in your 401(k), which reduces your taxable income and boosts your retirement savings.
- Strategize around charitable giving for maximum tax efficiency.
There's still time to shave a few bucks off your 2019 tax bill — if you act quickly.
The 2018 tax season came with harsh lessons for some taxpayers who didn't properly adjust their plans for the Tax Cuts and Jobs Act.
This overhaul of the tax code roughly doubled the standard deduction ($12,200 for single filers and $24,400 for married couples filing jointly in 2019), eliminated personal exemptions and limited certain itemized deductions.
Whether you're still smarting from this past tax bill or you're looking for a clever way to ramp up your savings in the remaining weeks of the year, you still have time to get it right.
Here's where to start.
Failure to withhold sufficient tax could leave you with a smaller-than-expected refund in the spring or you could wind up owing. Consider reviewing your 2018 return and crunching the numbers to update your withholding for the future.
Here's where things get tricky: To avoid an underpayment penalty, you're required to pay at least 90% of the current year's tax liability or 100% of what you owed last year.
That percentage goes up to 110% of last year's liability if your adjusted gross income was over $150,000 last year.
If you've been withholding all year and you still wind up short, writing a check to the IRS for estimated taxes now won't be enough to avoid the penalty.
"You're supposed to pay the taxes throughout the year," said Jeffrey Levine, CPA and director of financial planning at BluePrint Wealth Alliance in Garden City, New York. "Talk to your employer and change your withholding for year-end."
This might mean withholding a hefty chunk for December, which reduces your take-home pay.
Owning a few losers in your brokerage account can work in your favor this year.
Tax-loss harvesting is a strategy in which investors incur losses in a taxable account by selling investments that have declined in value. These realized losses can offset capital gains from appreciated assets.
If your capital losses exceed your capital gains, you can apply up to $3,000 a year in losses to offset ordinary income.
Meanwhile, if you're in a low tax bracket this year, consider selling some of your winners and reaping the capital gains in your taxable account.
"For those who are in the 12% ordinary income tax bracket, they can recognize capital gains and pay zero taxes," said Brooke Salvini, CPA and member of the American Institute of CPAs' personal financial planning executive committee.
You have until April 15, 2020 to stash money in your individual retirement account or health savings account for the 2019 tax year.
However, you have only until Dec. 31, 2019 to put away cash in your 401(k) for this year.
In 2019, you can save up to $19,000 in your workplace retirement plan, plus a catch-up contribution of $6,000 if you're 50 and over.
You get two benefits here: Contributions to your 401(k) reduce your overall taxable income for 2019, and you're shoring up your finances for when you finally stop working.
With the standard deduction so high after the tax overhaul, "bunching" charitable giving – or bundling at least two years' worth of donations into one year – is making sense for people who want to itemize on their 2019 return.
"Instead of $10,000 a year in charitable giving, you might do zero in one year and $20,000 in the next," said David Lehn, a partner at Withers in Greenwich, Connecticut.
"This way you really get something for your charitable contributions one year, then take the standard deduction the following year," he said.
Boost your tax efficiency by making a gift of highly appreciated stock, rather than selling the asset and donating the cash, said Salvini.
That's because you're paying capital gains taxes when you sell the stock, which diminishes the value of the gift – and the amount you can write off on your tax return.
If you gave away the stock instead, you avoid the capital gains tax and you can deduct the fair market value of the donation.
Get a letter of acknowledgement from the charity and keep it with the rest of your tax documents, as you'll need it next April.
If you're over age 70½ and taking required minimum distributions from your IRA – and you don't need the money – consider taking a qualified charitable distribution.
In this case, your custodian transfers the RMD directly to a charitable organization, and the distribution won't be taxable to you.
Be aware that there is no double-dipping allowed.
"It doesn't count as a charitable deduction for you, but you also don't have taxable income from the qualified charitable distribution," said Lehn.