Tax Season Tips & Planning Part Two

Enough of the year has gone by that you have a pretty good idea as to the income and deductions you have incurred thus far and there is still time to take action before the end of the year. Outlined, below, is part two for general tax planning ideas that may be of interest to you.

Charitable Giving

There are many ways to be tax efficient when making charitable gifts. Donating appreciated stock allows you to avoid paying capital gains while reducing your stock allocation and receiving a charitable deduction. You might consider bunching charitable deductions by deferring donations to next year or making your planned 2019 donations ahead of time. If the numbers are large enough, you might even consider a private foundation or donor advised fund for your charitable giving. If you are over 70.5 and don’t need your full required minimum distribution, making a qualified charitable distribution directly from your retirement account is a great way to reduce your tax bill.

Retirement Planning

Think about your future when working becomes optional. Whether you expect a full retirement or a career change to something different, determining an appropriate balance between spending and saving, both now and in the future is important. There are many options available for saving for retirement, and we can help you understand which option is best for you.

Cash Flow Planning

Review your 2019 spending and plan ahead for next year. Understanding your cash flow needs is an important aspect of determining if you have sufficient assets to meet your goals. If you are retired, it is particularly important to maintain a tax efficient withdrawal strategy to cover your spending needs. If you have not yet reached age 70.5, it is prudent to ensure you are making tax-efficient withdrawal decisions. If you are over age 70.5 make sure you are taking your required minimum distributions because the penalties are significant if you don’t.

Risk Management

It is always a good idea to periodically review your insurance coverage in various areas. Recent catastrophic events like hurricanes and wildfires serve as a powerful reminder to make sure your property insurance coverage is right for your needs. If you are in a Federal disaster area, there are additional steps necessary to recover what you can and explore the tax treatment of casualty losses. Other areas of risk management that may need to be revisited include life and disability insurance.

Education Funding

Funding education costs for children or grandchildren is an important goal for many people. While the increase in college costs have slowed some lately, this is still a major expense for most families. It is important to know the many different ways you can save for education to determine the optimal strategy. Often, funding a 529 plan comes with tax benefits, so making contributions before the end of the year is key. With the added flexibility of funding K-12 years (set at a $10,000 limit), 529 accounts become even more advantageous. If you have already contributed to 529 plans, make sure the asset allocation of those plans makes sense given the students’ ages and proximity to college age.

Elder Planning

There are many financial planning elements to consider as you get older, and it is important to consider these things before it’s too late. Having a plan in place for who will handle your financial affairs should you suffer cognitive decline is critical. Making sure your spouse and/or family understands your plans will help reduce future family conflicts and ensure your wishes are considered.

Medicare Part B Cost Management

Medicare Part B, which pays 80% of medical costs, has a base rate. If your income exceeds a certain threshold (for 2019: Single $85,000; Married Joint $170,000), you will pay more. The 2019 tax return will be used to determine your Medicare Part B premium for 2021. Knowing now if you are nearing the threshold will allow for some adjustments to be made which may keep you from paying more for Medicare Part B.

If you are interested in learning more about what tax planning opportunities apply to you, please contact us so we can discuss.

Contact me today if you have questions or comments.

Susan A. Moussi, CPA, CFP®, CDFA SMD Tax & Divorce Financial Planning Consultants, Inc.

Phone: 614.429.4172