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5 more tax moves to make by Dec. 31

End of month 31

Yes, I know I'm a nag when it comes to year-end tax moves. I've posted about individual steps to take by Dec. 31 both at the beginnings of November and December, as well as looked at business tax moves to make now.

But as happens all the time in life and taxes, I've come up with a few more year-end tax moves that didn't make the earlier lists, or at least were mentioned just in passing.

So here goes with five more tax moves to make by Dec. 31

1. Don't miss the RMD deadline.
You followed all the financial experts' advice and diligently stashed cash for your retirement. Now you're retired and the Internal Revenue Service wants its cut of money that's been accruing tax-deferred in traditional IRA and your workplace's regular 401(k).

In fact, Uncle Sam demands his portion by making you take out at least a portion of from these accounts when you turn 70½. You then owe tax at ordinary income tax rates on the withdrawal.

How much you must take out is based on IRS-created distribution tables that use your account values and age to determine what is known as your required minimum distribution (RMD).

And Uncle Sam sets specific deadlines for these RMDs. You must take your first one by Dec. 31 of the year you hit the 70-and-a-half mark. Your first RMD, however, can be delayed until April 1 of the following year. Note, though, that doing so will make you take two taxable RMDs in one year.

You can sidestep the taxable RMD money if, as mentioned in my earlier end-of-year tax moves posts, by making a qualified charitable distribution (QCD). With an QCD you directly transfer your RMD amount to an IRS-qualified charity.

Whichever option you choose, be it withdrawing one payout now or two next year or donating your RMD, don't miss this December's or next April's RMD deadline. You'll pay a hefty tax penalty for doing so.

2. Double check your estimated tax payments.
If you have to take an RMD, that's going to bump up your tax bill.

And if your retirement account administrator doesn't withhold for this in making your RMD, you're on the hook for covering the added taxes via estimated payments.

RMDs aren't the only income that typically shows up at the end of a tax year.

There's your workplace bonus and the distributions from your investment accounts. Note that you'll owe tax on the investing earnings even if opt to reinvest the interest, dividends and capital gains distributions. In the IRS' eyes, you've constructively received the money — that means it's yours to do with as you wish, either to spend or automatically reinvest — so it's taxable income.

You'll need to make sure your 4th quarter estimated tax payment — paid by Jan. 15 of next year either via snail mailing a paper 1040-ES or doing so electronically — covers all this added income.

Now's a good idea to start thinking now about where you're going to get that money. Maybe use some of those cash Christmas gifts? Yeah, I know it's now how you want to spend the holiday money, but if you underpay your 1040-ES amounts, you'll owe penalties and interest at regular Form 1040 filing time.

3. Contribute to your child's 529 plan.
It's always a good idea to put money into tax-favored education plans. Doing so as early as you can means you get the advantage of more compounding of your account's earnings.

School bus and kids

Lots of parents swear by 592 plans. These college savings accounts grow tax-free as long as you eventually use the money to pay for qualifying educational expenses. In addition to the usual classroom-related fees, books, supplies and equipment, tax law changes now make 529 funds available for Kindergarten through grade 12 education costs.

Even better, some states offer income tax deductions to residents of the state that contribute to that state's plan. To make sure you get to claim that deduction for this tax year, you'll need make your 529 plan contribution by the end this tax year.

4. Know the value of donating items instead of cash.
If you still itemize, you know that charitable donations are one of the best ways to bulk up these write-offs. The Tax Cuts and Jobs Act (TCJA) not only left this Schedule A deduction in place, it increased the amount you can give to 501(c)(3) charities from 50 percent of your adjusted gross income to 60 percent.

Sure, most of us won't get near that new top giving limit. But lots of us overlook easy ways to increase our donation deductions.

To find the proper amount you can claim on your taxes, visit local thrift stores to get an idea of the fair market value (FMV) of your old clothing and household goods that are, of course, in good shape.

National charitable groups also provide FMV tables to give you an idea of the amount you can claim.

Cars and other vehicles also are often overlooked tax deductible donation options. It's no longer as simple as just checking automotive valuation sites like Kelley Blue Book, but donating your auto is still a worthwhile tax move and opens up all that space in your garage or driveway.

5. Set up your 2019 tax filing organization system.
December and January are crazy crossover months when it comes to taxes. You're wrapping up one tax year while making plans for the next. That double duty is why it's crucial to get organized. Now.

For your 2019 filing purposes, you need to dig out any tax documentation and sort it. This includes business-related receipts, especially if they're for a gig job you had this year, as well those for things like medical expenses and charitable gifts if you plan to itemize.


Getting this material in order now will give you a head start when the IRS finally opens the annual filing season, usually at the end of January.

As for that coming filing season, you'll also want to establish a system to collect all the tax forms that will start arriving next month. Keeping track of W-2 and 1099 forms as they arrive will ensure that you don't miss any. If your tax life this year hasn't changed much from the prior one, last year's filing (you kept a copy, right?) can give you an idea of what documents to expect.

I hear you. It's high holiday season and you're already swamped with tons of planning and tasks. Don't freak out.

Your tax record filing system doesn't have to be elaborate. But I do suggest it be more than just a box. Admit it, that's just a portable pile of stuff that you'll eventually have to sort.

Personally, as someone still committed to paper, I like the old-school accordion folder. You can get one with enough slots to separate receipts (charitable as well as business), confirmation letters, official financial statements, cryptocurrency transaction records and incoming tax documents to separate them while still keeping them together.

If you've gone digital, set up a separate Taxes 2019 folder on your computer or other device. Then create subfolders in there for holding the electronic versions of all the stuff I still stick in my oversized folder. And be sure to regularly back up these documents, just in case something happens to your machine or storage service before April 15.

Whichever tax filing system you use, establish it now and follow through. And do so even if you plan to turn your tax filing task over to a paid preparer. Your tax pro will need all this material to work on your behalf.

Plus, it'll save you from nagging phone calls from your tax pro. And trust me, paid tax preparers are going to be a lot more insistent than I am (really!) and will charge you more if you make them wait.





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Kay Bell

Will, as I understand it, if it is your first RMD regardless of age when required, this first mandatory distribution is eligible for the 3-month extension until April 1 of the following year. Remember, though, that if you wait until after Dec. 31 to take your RMD, you will have to take two distributions in one year, and that could affect your income tax bracket or Medicare premiums. Thanks for reading. Kay

Will B

If I am past 75 when I do retire, do I have to take the RMD by the end of the retirement year? Example - I intend to retire Nov 1, 2020; do I have to take an RMD by Dec 31, 2020 or do I get a grace period until 31 Dec 2021?!

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