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Year End Tax Planning Tips and Information

With 2019 nearly over, it’s time to prepare for filing your taxes. Let’s look at a number of tax tips that you should keep in mind before the year draws to a close.


First, defer bonuses or other income into 2020 if possible. The additional income may push you into a higher tax bracket and increase your tax bill. Also, the IRS adjusts tax brackets slightly upward each year to account for inflation. If you’ve had a good year financially, pushing off any bonuses or other income will defer your tax for a year and will also give you the opportunity to keep some of that money in lower tax brackets.


Next, accelerate deductions if you plan to itemize this year. The standard deduction for 2019 is $24,400 for married taxpayers, $18,350 for heads of household and $12,200 for single filers. The 2017 Tax Cuts & Jobs Act (TCJA) nearly doubled the standard deduction, so fewer taxpayers will itemize. However, if you plan to itemize, max out your deductions before year end.


Typical deductions will include medical expenses, charitable contributions (make sure they are legitimate organizations), state & local taxes (including property taxes and automobile ad valorem taxes, and home mortgage interest). Make sure to obtain receipts and statements for your deductions to help ensure you take advantage of them. One major change is that athletic ticket priority (such as Tigers Unlimited) is no longer deductible at all.

A newer strategy for itemizing deductions is to bundle them in a single year. That is, accept the standard deduction in one year, and bundle 2 years’ worth of deductions in the other year (to the extend possible) to maximize your tax refund. Prepay your mortgage and charitable giving as much as possible in one year, to be followed by lower or fewer payments in the next.


Consider contributing to a donor advised fund for charitable purposes. These are funds that allow taxpayers to make charitable contributions (and claim the tax deduction) for future distribution at their discretion. This may help to smooth your giving to recipient organizations while still providing you a heftier tax deduction in the same year.

Additionally, retirees may wish to contribute any remaining Required Minimum Distributions (RMDs) from their retirement accounts directly to charity. This avoids claiming the income while simultaneously taking advantage of tax benefits for charitable deductions.

You may also increase contributions to your retirement account such as an Individual Retirement Account with a $6,000 limit (plus another $1,000 if you are over 50) or 401(k) or 403(b) through your employer with a $19,000 limit (plus another $6,000 if you are over 50) to boost your savings and reduce your taxable income. Prepay college tuition if you’re eligible to take advantage of benefits such as the American Opportunity Credit or Lifetime Learning Credit).


You may also wish to sell stock investments that have realized significant losses, especially if you have capital gains that you’d like to shelter from tax. While federal tax law limits capital losses to $3,000 per year for married filers ($1,500 for singles), they can be carried forward to future years or used to offset gains. Alabama does not limit such losses, so that is an added benefit.

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