Take steps now to save on your 2019 tax return
2019 is winding down, and before you know it, you’ll be pulling together everything needed to file your federal income tax return for the year. Federal income tax returns for 2019 are due on or before April 15, 2020. But if you’re interested in potentially saving on taxes, you should plan now, before 2019 comes to an end. Talk to your tax professional about whether the considerations below apply to you.
How you claim deductions affects the steps you can take to save. You have the option to either take the standard deduction (an amount set by law and adjusted for inflation) or itemize deductions. However, fewer people may benefit from the itemized deduction option due to changes in the tax law that took effect in 2018. The standard deduction nearly doubled from 2017 to 2018. For 2019, the general standard deduction is $24,400 for married couples filing a joint return and $12,200 for single tax filers1. At those dollar amounts, it may not benefit you to itemize your deductions, but thankfully there are still potential tax-saving steps you can take.
Here are potential tax-saving opportunities that may apply to you:
• Save more for retirement: One priority if you are still working and contributing to a workplace retirement plan is to maximize your contributions to that plan. Dollars contributed to the plan on a pre-tax basis reduce your taxable income, which reduces your tax bill.
• Take advantage of other pre-tax savings options: You may be able to contribute money from your paycheck to fund a Health Savings Account or HSA (if your current health plan offers that option). This builds funds that can ultimately be available on a tax-free basis if used for qualifying medical expenses while reducing taxable income. What’s more, any HSA money not spent this year can continue to grow on a tax-advantaged basis and be used in the future to offset out-of-pocket medical expenses.
• Offset investment gains with losses: If you have taxable investments that are currently in a loss position, you can sell those investments and deduct those capital losses from your capital gains on a dollar-for-dollar basis, reducing your tax liability. To the extent your capital losses outpace capital gains, you may also deduct losses against up to $3,000 of ordinary income. Unused losses are carried forward.
If you can benefit from itemizing deductions, some key steps to consider include:
• Make your January mortgage payment before the end of December as you may be able to claim the interest portion of the payment as a deduction this year.
• Make donations to qualified charities by Dec. 31.
• Keep track of state and local taxes, up to $10,000 may be eligible to be deducted from your federal income taxes.
As part of your planning process, consider if your total available itemized deductions are nearing the amount of the standard deduction. If they are, contemplate taking steps to qualify for additional or increased deductions. Donating to charity, making an additional house payment with mortgage interest or paying medical expenses (subject to an AGI floor) are common itemized deductions. Incurring these expenses in this calendar year may allow you to reduce your taxable income by more than the standard deduction. However, be aware of certain limitations and deductions that are no longer available as a result of the new tax law.
If you believe you’ll be closer to the itemized deduction threshold in 2020, you may want to delay deductible expenses until next year to the extent you are able. Going forward, it might be beneficial to bunch deductible expenses in alternating years to utilize the itemized deduction option when you can.
As always, be sure to consult with your tax advisor. Also check with your financial advisor to make sure any decisions you make are consistent with your long-term financial plan.
1 Internal Revenue Service, 2019
Randy Groff, ChFC, CLU, CRPC, is a financial adviser with Ameriprise Financial Services, Inc., in Marshall.