As we head towards the end of the year, we’re fast approaching the deadline to implement your family’s tax strategies for 2019. The Tax Cut and Jobs Act (TCJA) completely overhauled the tax code, and if you’ve yet to take full advantage of the benefits offered by the new tax law, now is the time to do so.
To qualify for some TCJA’ tax benefits, you’ll need to act by December 31, so don’t wait to get started. The following 4 tips could save your family big money on your 2019 tax bill.
1. Rethink itemization Under the new tax law, itemizing your deductions might no longer make sense. That’s because the TCJA increased the standard deduction up to $12,200 for individuals and $24,400 for married couples filing jointly. So, if you're filing a joint return, you need more than $24,400 in itemized deductions to make itemization worth it.
The law also places new limits on itemized deductions, including a $10,000 cap on property taxes, and the elimination of state and local income-tax deductions. Given these changes, taking the standard deduction might be the best option, but other factors, such as your health expenses and charitable giving, could affect your decision, so consult with us and/or your CPA to make sure. 2. Maximize contributions to retirement accounts By maximizing your contributions to tax-deferred retirement accounts like IRAs and 401(ks), you can not only save for retirement, but also reduce your taxable income for 2019. In 2019, you can contribute up to $6,000 to an IRA and up to $19,000 to a 401(k) if you're under 50, and up to $7,000 to an IRA and $25,000 to a 401(k) for those 50 and older. If you can’t afford the maximum amount, try to contribute at least the amount matched by your employer, since that’s basically free money. You have until December 31, 2019 to contribute to a 401(k) plan and until April 15, 2020, to contribute to an IRA for the 2019 tax year.
3. Defer your income if you'll make less next year If you’re expecting to make significantly more income this year than in 2020, try to defer as much income into next year as possible. However, this strategy only makes sense if you’ll be in the same or a lower tax bracket next year. This might mean asking your boss to delay paying a year-end bonus until after Jan. 1, 2020, or if you’re self-employed, waiting to invoice some clients until the new year. And whether you’re an employee or self-employed, you can also defer income by taking capital gains in 2020 instead of in 2019.
On the other hand, if you think you’ll be in a higher tax bracket in 2020, you may want to do the opposite and accelerate income into 2019 to take advantage of a lower tax bracket. Contact us to find out what’s best for your situation.
4. Save on the child tax credit The child tax credit now offers up to $2,000 per qualifying dependent child. To qualify, your child must be 16 or younger at the end of 2019. The first $1,400 of the credit is refundable, so the credit could reduce your tax liability to zero, and you’d still receive a refund.
The cut-off for the tax credit is $400,000 for married couples filing jointly, and $200,000 for everyone else. Don’t miss out on 2019 tax savings Implementing these—and other—year-end tax-saving strategies could save your family thousands of dollars on your 2019 tax bill. But if you don’t act soon, these opportunities may vanish for good. This article is a service of Chris Pryor, Personal Family Lawyer®. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That's why we offer a Family Wealth Planning Session, ™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.