November is the place for perfectly roasted Thanksgiving bird, not the many tax turkeys that can gobble up your money. These monthly tax moves are a great garnish as you finalize your 2019 tax year menu.
It's November. You know what that means. Year-end tax move time.
Oh yeah, and holiday plans.
I hear ya. It's that crazy hectic part of the year, whether you're the host/hostess with the most/mostest or planning to travel to your Thanksgiving festivities.
But you also need to add taxes to the mix. Now. Before you get all involved in Turkey Day and then, right on its heels since it's Nov. 28 this year, Christmas or Hanukkah or Mawlid an Nabi or whatever is your faith's end-of-year holy day.
If you don't get tax task proactive now, all the other important non-tax stuff that demands your attention this time of year will take over and you'll miss out making some tax-smart tax actions.
Here are 10 tax things to consider and, wherever applicable, complete ASAP. Then you can get back to your holiday planning.
1. Consider crossover tax effects.
At this time of year, you're obviously focusing on ways to reduce your 2019 tax bill. But with 2020 looming, you also should look at what moves you make in the next two months might do to your 2020 taxes, too.
The best of both tax worlds is to reduce your taxes in both years.
So dust off your crystal ball and look at what your income is so far, what it will be by the end of 2019 (end-of-year workplace bonus, investment year-end payouts) and what you expect it to be in 2020 (same, more, less). That will give you an idea of whether you need to defer current taxable income and/or accelerate write-offs and into 2019 or vice versa.
2. Compare itemized vs. standard deduction options.
Your two-year tax analysis also entails consideration of whether you want to itemize or use the Tax Cuts and Jobs Act's (TCJA) larger standard deduction amounts. For the 2019 tax year, it's $12,200 for single filers and twice that for married couples filing jointly.
If, however, you can write off more by filing a Schedule A, make the most of the still-available itemized deductions.
Mortgage interest remains fully deductible, so you make your January 2020 payment before the end of the year and claim it on your 2019 return.
Also look at medical expenses. If you've spent a lot on health care this year — a lot per the TCJA rules is more than 10 percent or your adjusted gross income (AGI) … unless Congress acts on extenders that could keep that AGI threshold at 7.5 percent — or will by Dec. 31, think about getting and paying for elective medical procedures this year to bump up this deduction.
Also look into bunching as much health-related costs (an extra pair of prescription contact lenses, medicine that can be refilled now instead of waiting until 2020) that can help you bulk up your medical itemized deduction for 2019. Then by pulling these costs into this tax year, you can claim the standard deduction in 2020.
3. Fine tune your Form W-4.
By now, you should be aware of how the TCJA changed tax rates and the income amounts taxed under them. You also might have had a bad surprise this last filing season when your refund wasn't what you expected or worse, you owed the Internal Revenue Service more.
To avoid that again, use the IRS' updated withholding calculator to do a paycheck checkup now. Making any changes in November will spread out the changes over several paychecks, reducing any possible cash flow issues if you need to have more withheld.
4. Spend down your FSA.
Sticking with tax health for a minute, take a look at your medical flexible spending account (FSA). These workplace accounts offer a great way to set aside pre-tax dollars you can spend on medical expenses that aren't covered by your insurance. But they have one big drawback. Many still require you to use up all of your FSA money by the end of the benefits year, which is Dec. 31 for most companies, or you'll lose them.
Some companies give FSA owners a grace period until March 15 to use the money. Others allow a rollover of at least some of the accounts' funds. But your best bet is to spend down your FSA completely to ensure that it's not wasted. Making those decisions in November can help you avoid panic FSA spending at the end of the year.
5. Be charitable.
During the traditional gift-giving season, many folks make giving to charities part of their holiday celebrations. In addition to making you feel good, such contributions are still deductible under the new tax law.
The most common ways of giving to an IRS-approved nonprofit is by writing a check or charging your donation to your credit card. You also can donate clothing or household items and deduct the value of your old property.
There also are other more creative ways to give. Donate appreciated stock that, in your portfolio evaluation, you decided no longer fit your overall investing plan.
And if you're age 70½ and are facing a required minimum distribution (RMD) that could push you into a higher tax bracket, consider directly transferring that RMD amount (up to $100,000) to your charity of choice. It allows you to meet the withdrawal rule without having to pay tax on the amount. While an RMD direct donation means no charitable tax deduction on your tax return, you do avoid a chunk of taxable income and that's a pretty darn good tax break.
You can make your Thanksgiving-related donations this month. But make a note that you can give more as the December holidays near.
Checks to charities that are mailed by Dec. 31 will count as a 2019 deduction even though they will be delivered to your favorite nonprofit next year. The same deduction timing applies to credit card donations. You can write off the charitable gift charged to a bank credit card in the year you made the charge.
6. Make tax-favored gifts to family.
The annual gift tax exclusion provides a great way for people of means to give to those close to them in the context of reducing a potential estate tax down the road. Under this tax provision, you can give a sizable amount — it's $15,000 per person in 2019 — each tax year without paying gift tax or tapping your lifetime estate and gift tax exemption.
Your spouse can also give $15,000 to the same donee in 2019. That's a $30,000 tax-free gift for wealthy couples.
If you don't use the gift tax exclusion in a tax year, it's gone forever. So if you've got it, share it while you're still around to get the thanks and hugs.
Just don't be too generous here. Annual gifts that exceed the exclusion amount will trigger the filing of a gift tax return for the year. But no gift tax will be due unless your total lifetime gifts exceed $11,400,000; that's the estate tax exemption amount for 2019.
You also can use the exclusion to contribute to 529 plans to help your children or grandkids pay for their educations. You're allowed to put in up to $75,000 in a single year per beneficiary; $150,000 if your spouse wants to give, too. If you put in the maximum, the IRS considers you as giving $15,000 (or $30,000 from you and your husband or wife) to that beneficiary in 2019 and in each of the next four years (2020 through 2023).
This bulk 529 pay-in process is excluded from your estate as long as you live through the fifth year.
7. Feather your nest eggs.
It's great that you're such a generous parent or grandparent. But don't overlook your financial and tax needs. Add as much as you can to your retirement accounts by year's end. This is a perennial suggestion, as far too many taxpayers fail to make the most of their 401(k)s and other savings accounts.
Yes, you do have until next April 15 to make IRA contributions, either traditional or Roth, for the 2019 tax year. But the sooner you get your money into the account, the sooner it has the potential to start to grow tax-deferred. And if your traditional IRA is deductible, that will reduce your taxable income for the year.
When it comes to workplace retirement plans, Dec. 31 is the last day you can put money for the current tax year into your 401(k) or similar plan. So get to your benefits office now to bump up your contributions for the final pay periods of the year. This post on 2019 inflation adjustments for retirement plans has specifics on how much you can put into your nest eggs this year.
8. Harvest your investment tax losses.
The stock market has been on a bit of roller coaster ride in 2019. So what else is new?
Sure, the S&P 500 and Nasdaq both traded in record territory in the past week. And the Dow, which closed Nov. 1 above the 27,000 mark, could be just days away from its own new high. FYI, the Dow Jones Industrial Average reached an all-time high of 27,398.68 in July of 2019. Its record low was 28.48 in August of 1896.
But as the year-to-date graphic below shows, there were some market down days this year.
If you didn't escape a market dive or simply have some dogs in your portfolio, it might be a good idea, as part of your overall asset analysis, to sell some of the holdings that haven't done so well this year. This stock loss harvesting can be used to offset any gains you made on other sales this year.
Yes, it is hard to admit you made a bad investment decision. I've been there. Most of us have. But there's a school of financial thought that you should realize your losses sooner rather than later. Investors who wait until the very end of the tax year are likely to pay more taxes than those who realize losses when they occur, says , says Mier Dr. Statman, the Glenn Klimek professor of finance at Santa Clara University's Leavey School of Business. If you wait until December, says Statman, the share prices might increase to what you paid for them, or more, and the opportunity for a tax deduction would disappear.
Capital losses also could be especially beneficial to higher income taxpayers facing the 3.8 percent Net Investment Income Tax (NIIT). This surtax, part of the Affordable Care Act, is still in the tax code. It applies to the unearned income, not adjusted for inflation, of single or head of household filers with modified adjusted gross incomes (MAGIs) of more than $200,000 and married joint filers earning $250,000 (or $125,000 if married and filing separately). Harvesting losses can help high earners reduce their NIIT amount.
And if in taking those losses you discover you have more of them than gains, you can claim up to $3,000 in bad investments against your ordinary income to help lower that taxable amount. Then get a new financial adviser!
9. Collect your cryptocurrency documents.
You'll need this paper trail if you buy, sell or mine cryptocurrency for an accurate record of what you owe on this property. Yes, that's how the IRS views Bitcoin and its digital brethren.
And yes, the IRS is serious about tracking these investments. Earlier this year, it launched a concerted effort to get the taxes it says are due from Bitcoin et al owners. Uncle Sam's tax collector sent letters to more than 10,000 taxpayers it says completed virtual currency transactions and then failed to report the resulting income and pay the appropriate tax or didn't report those transactions properly.
To avoid upping the IRS' literal not virtual ire, start collecting all the info related to your cryptocurrency activity now. If you don't have complete and correct records of your transactions, you could be subject to added attention from the IRS and possibly face a bigger tax bill that you expected.
10. Pay attention to passthrough issues.
If you're a small business owner who's eligible for the TCJA's new Section 199A tax deduction for passthrough entities, take it. Just be careful. This is one of the most convoluted, confusing portions of the new tax law. Heck, it took the IRS more than a year after the TCJA's passage to issue official guidance on the 20 percent tax break and its many permutations.
In addition to determining just how much the new deduction can save your company, you need to ensure that your business qualifies and find out whether you need to make any changes to your compensation structure to maximize the tax break. So if you don't have a tax professional to guide you through this new tax break, hire one now.
More November tax moves: And that wraps the 10 tax moves to make, or at least start looking into, this November.
I know. That's a lot of tax tasks to shoehorn into one of the craziest months of the year. But if any or all of them apply to your financial and tax situations, check into them. They could make a valuable difference to your tax liability.
If, however, you're a tax glutton, you can find some more November-specific tax moves over in the ol' blog's right column. They're under the bright red November Tax Moves heading, just below the countdown clock ticking off the time left here in tax year 2019.
Once all this tax stuff is done, you still have time to work on your Turkey Day and beyond holiday celebrations. And you'll be able to do without that nagging tax voice in your head.