By Lucas Casarez
Do you like paying taxes? I didn’t think so. It is one of the few things that nearly everyone in the country can agree on. You don’t want to pay more taxes than you need to, legally. With the end of the year approaching, what can you actually do to lower your tax liability for 2019? I have you covered!
401(k) Contributions: This usually requires you to log in and increase your contribution rate. Be sure to log back in before January 1st to re-adjust your contribution percentage.
Limit: $19,000 + $6,000 if you are age 50 and better
Charitable Giving: This strategy only works if itemizing your deductions is still favorable. An advanced strategy would be gifting investments that have gained a lot of value instead of cash.
(The tax reform at the end of 2017 eliminated the likelihood for many Americans to itemize their deductions based on the changes they made to qualifying itemized deductions and greatly increased the standard deduction)
College 529 Contributions: Contributions are required to be made into a Colorado eligible 529 plan. These contributions only reduce your state tax liability and have no impact on your federal taxes for 2019.
Tax Loss Harvesting: If you have investments that have lost value, you may be eligible to write off the losses and reduce your tax liability. The limit for losses is $3,000 and any remainder may be carried forward towards future tax returns.
Delay IRA Distributions: If you are retired and can delay taking distributions from your IRA account towards the end of the year, then waiting until January 1st, 2020 will allow you to defer taxes until next year. This is especially beneficial if you have already accumulated a large amount of income in 2019 and expect 2020 to have a lower income tax bracket.
Bonus Time: There are two types of accounts that can be funded by April 15th, 2020, but reduce your 2019 taxes.
IRA Contributions: IRA accounts can be opened as investment accounts or even a savings account at a local credit union. (Income limits apply.)
Limit: $6,000 per year plus an additional $1,000 if you are age 50 or better.
HSA Contributions: You would have had to been covered by an eligible High Deductible Health Plan (HDHP).
Limit: $3,500 Individuals or $7,000 Family + Additional $1,000 if you are age 55 or better.
Taking advantage of every tax planning opportunity can make the difference between thousands and thousands of dollars over your tax-paying life. It is important to not miss these tax planning windows because there are no do-overs.
There are 8 additional strategies I always consider with clients, but these additional strategies don’t reduce your taxes. Instead, they are strategic plans to optimize tax efficiency over multiple years, not just 2019 taxes.
**Information provided is for general educational purposes only and is not to be considered advice. It is recommended that you conduct additional research or consult a professional before implementing any information obtained from this article.**