Here is a list of creative year-end tax planning ideas designed to help you take advantage of the tax laws:
- You can gain more control over your target amount of taxable income by taking the Section 179 deduction for up to $1,000,000 of qualified business properties placed in service during 2019 because you can select the amount to be deducted. On the other hand, using bonus depreciation is an all-or-nothing situation and may create a net operating loss. You want to avoid net operating losses, if possible, since they only offset up to 80% of taxable income and cannot be carried back to a prior year unless you are a farmer.
- If you have multiple businesses, you may want to aggregate them for purposes of wages and qualified property to achieve your best results for Section 199A 20% deduction. Aggregation is not always helpful—but sometimes it is.
- You can proactively use retirement plan contributions, charitable contributions, and other deductions in an attempt to reduce your income to a level where it will qualify for the Section 199A 20% deduction.
- If you are age 70.5 or older, consider transferring up to $100,000 of your IRA funds to charity, free of tax.
- Put a portion of your investments and businesses in a single-member limited liability company. Then, if your spouse or parent becomes ill, you can more easily move those assets to your spouse or parent to get the basis step-up at death and completely eliminate taxes on the appreciation. Additional planning is necessary if you want to continue to benefit from these assets.
- If you don’t have an estate tax problem, use your current $11,400,000 estate and gift tax exemption (as well as your spouse’s $11,400,000 exemption) now to reduce or eliminate estate taxes or to fully asset protect your estate from creditors. This $11,400,000 exemption amount drops at the end of 2025 to approximately $5,000,000 so this is a use-it-or-lose-it situation. (And the IRS has recently confirmed there are no issues in using it now.)
- Consider establishing a donor-advised fund to manage your charitable contributions and fund it with appreciated assets. A donor advised fund is much cheaper and more tax effective than a private foundation.
- Invest your capital gains in opportunity zone investments for both tax deferral and tax reduction, depending on how long you hold the investments.
- Use Section 529 plans to save tax-efficiently for primary, secondary, and college expenses. Check the details of your plan since not all 529 plans have been amended to allow for primary and secondary expenses.
- If you have a lot of unreimbursed business expenses, consider creating your own S corporation or limited liability company (if possible) so that you can offset income and salary with the expenses.
If you have any questions or ideas after reading this article, please don’t hesitate to contact our office.