VOLUME 2, ISSUE 4: 2019 Year-End Tax Planning Tips

Finance

2019 Year-End Tax Planning Tips

As this year draws to a close, it’s time to start getting ready to prepare your 2019 tax bill.

Carole C. Foos, CPA; and David Mandell, JD, MBA

At A Glance
  • The Tax Cuts and Jobs Act of 2017 affected tax rates for standard businesses, state and local income tax deductions, mortgage interest rates, and estate taxes.
  • Many medical center owners’ individual taxable income was above certain threshold amounts, making them ineligible for the section 199A qualified business income deduction because their organizations were a specified service trade or business.
  • Consider establishing a trust for your estate to protect your assets from future estate tax increases and exemption reductions.

Although many of you have just completed and filed your 2018 tax returns, it’s already time to look to the end of 2019 and take steps to reduce this year’s tax bill. Since 2018 was the first year that most provisions of the Tax Cuts and Jobs Act of 2017 were in effect, hopefully you have a better understanding of how the new tax law affected you and will continue to affect you for the 2019 tax year and beyond.

TAX DEDUCTIONS: CHOOSING BETWEEN STANDARD AND ITEMIZED

One of the biggest changes for 2018 individual filers was the reduced state and local income tax deduction, which is now capped at $10,000. This change, along with the increased standard deduction, led to many filers not itemizing deductions in 2018. If there’s a chance that you won’t itemize deductions in 2019 and will instead claim the standard deduction ($24,400 for married taxpayers filing jointly; $12,200 for single filers), consider how this will affect other deductions.

Charitable contributions are only deductible for taxpayers who itemize. You may want to consider bunching your charitable contributions to take full advantage in the years when you will itemize deductions. Donor-advised funds may be a consideration for taxpayers who want to make a larger contribution in a given year, but still have the charities benefit over several years. Also, take a look at your mortgage if you will no longer itemize. Because interest rates are still low, you can likely still earn more by investing assets in the market than what you’re paying in mortgage interest, even if you don’t get a tax deduction for the mortgage interest.

POSSIBLE DOUBLE DEDUCTION FOR PRACTICE OWNERS

Many of you found out the hard way that your pass-through business did not qualify for the new section 199A qualified business income (QBI) deduction. Medical practice owners whose individual taxable income was above certain threshold amounts were ineligible for the deduction because their organization was a specified service trade or business. Depending on how close your income was to those amounts, you may be able to reduce your income below the threshold by either implementing or enhancing your current qualified retirement plan (QRP). This can result in not only a deduction for your QRP contribution, but also the 20% QBI deduction. The combination of the two deductions often pays for much of the QRP cost.

The final regulations for section 199A did contain an example in which an outpatient surgery center was not a specified service trade or business. In the example, no physicians, nurses, or medical assistants were employed by the surgery center, and patients were only billed a facility fee by the surgery center. If you feel that your center might fit this example, discuss with your CPA whether you can take the QBI deduction this year or if there are steps you can take to become eligible for the deduction.

IS YOUR INVESTMENT PORTFOLIO DESIGNED FOR TAX SAVINGS?

Your investment portfolio provides ample opportunities for tax planning. Having a tax-efficient portfolio can save you thousands of dollars in taxes. Consider the timing of sales: A holding period of greater than 12 months allows you to pay long-term capital gains rates on the realized gain from a sale with a maximum rate of 20% versus a maximum rate of 37% on an investment that was held for less than a year. Be proactive in realizing losses to offset capital gains, and vice versa. A temporary dip in the stock market may be the time to realize some losses can be used to offset capital gains. If you find that you have net realized losses this year, sell some of the investments that have had tremendous gains over the past few years and then repurchase them at their higher price in order to both offset your losses and increase your basis in your current stocks.

It’s also a good time to evaluate which stocks you hold in which accounts. Brokerage accounts, Roth IRAs, and qualified plans are subject to various forms of taxation. It’s important to utilize the tax advantages of these tools to ensure they work for you in the most productive manner possible. Investment vehicles paying qualified dividends are preferred in a brokerage account, while it is generally preferable for qualified accounts to own high-yield bonds and corporate debt taxed at ordinary income rates. Work with your investment advisor to make sure your portfolio is properly positioned for tax efficiency.

ESTATE PLANNING CONSIDERATIONS

You may also want to think about your estate planning. The Tax Cuts and Jobs Act made the federal estate tax exemption $22.8 million for married couples in 2019, but that exemption amount will end in 2025. Before then, it might make sense to transfer some of your wealth to a trust for the benefit of your heirs. Assets that you know you won’t need in your lifetime can thus be protected against future estate tax increases and exemption reductions.

As Benjamin Franklin said, “Failing to plan is planning to fail.” Act now to protect your wealth and maximize your tax savings opportunities in 2019.

Disclosure: OJM Group, LLC (OJM), is an SEC-registered investment adviser with its principal place of business in the State of Ohio. SEC registration does not constitute an endorsement of OJM by the SEC nor does it indicate that OJM has attained a particular level of skill or ability. OJM and its representatives are in compliance with the current notice filing and registration requirements imposed upon registered investment advisers by those states in which OJM maintains clients. OJM may only transact business in those states in which it is registered or qualifies for an exemption or exclusion from registration requirements. For information pertaining to the registration status of OJM, please contact OJM or refer to the Investment Adviser Public Disclosure website www.adviserinfo.sec.gov. 

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This article contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized legal or tax advice. There is no guarantee that the views and opinions expressed in this article will be appropriate for your particular circumstances. Tax law changes frequently; accordingly, information presented herein is subject to change without notice. You should seek professional tax and legal advice before implementing any strategy discussed herein.

Mr. Mandell is an attorney, consultant at the OJM Group, and author of more than a dozen books for doctors. To receive free print copies or e-book downloads of For Doctors Only: A Guide to Working Less and Building More and Wealth Management Made Simple, text RETINA to 555-888, or visit www.ojmbookstore.com and enter promotional code RETINA at checkout.