Are You Ready for the 2020 Tax Filing Season?

It’s hard to believe, but 2019 is drawing to a close! If you haven’t already reached out to your accounting advisory about year-end tax planning, now is the time to do so. Due to the fact that 2020 is an election year, it is especially important to consider taking advantage of existing regulations established by the Tax Cuts and Jobs Act (TCJA). We cannot be sure if the TCJA reforms will remain in law following the 2020 elections. Additionally, as you approach your end-of-year tax planning, you should keep in mind that the TCJA eliminated some tax strategies and simultaneously made others more critical. Below, we have compiled a list of items for both businesses and individuals to consider as they seek to establish a strong tax footing for the 2020 filing season.

Tax Planning for Individuals

Here are some items to consider for those filing personal taxes. Keep in mind that this is only a starting point—we definitely recommend reaching out to your accounting advisor in order to develop a thorough end-of-year tax plan.

Investments –

You have a few options here. You should consider:

  • Transferring appreciated stocks or mutual fund shares to loved ones whose income level allows them to take advantage of the TCJA’s 0% investment income tax.
  • Converting traditional IRAs into Roth accounts, if you expect to be in the same or a higher tax bracket during retirement. The tax hit for doing this now is likely lower than it will be in the future.
  • Selling appreciated securities to take advantage of current long-term capital gains federal income tax rates.
  • Tax loss harvesting your losing investments. That is, selling investments that have been losing money in order to harvest the losses and use them to offset taxes on investment gains or reduce your taxable income.
  • Donating appreciated securities in order to reduce taxable income.

Personal Property –

If you are considering selling your home, do so sooner rather than later in order to take advantage of the home sale gain exclusion break, which allows no federal tax on gains of up to $500,000.

Standard Deduction –

If you are close to itemizing above the standard deduction, consider making additional expenditures in order to get there. Your options include:

  • Accelerate you house payment by one month
  • Prepay your 2020 state and local income and property taxes
  • Make additional charitable donations (some taxpayers are opting to bunch their donations—that is, donate a lump sum in one year and mark it to be distributed over the course of a few years)
  • Accelerate elective medical procedures, dental work, vision care, etc.
  • Increase, and even max out, your retirement plan contributions

Tax Planning for Businesses

In addition to planning for your personal taxes, there are a number of strategies for getting your business in the best position possible headed into 2020. Check out the following tips, then reach out to your accounting advisor to see what works best for your situation.

Entity Selection –

Reevaluate your entity type and consider if you a change would be more tax-favorable.

QBI Deduction –

There are a number of methods for taking advantage of the QBI deduction. If you’re subject to the 20% taxable income limit, consider how you can increase taxable income in order to increase your QBI deduction:

  • Defer income and/or accelerate expenses to lower your taxable income below the QBI threshold.
  • Hire W-2 employee rather than contractors in order to increase your deduction.

If you have a low, or no, QBI, consider establishing a business (e.g., becoming a consultant) in order to take advantage of the deduction.

Tax Credits –

Many popular tax credits did not survive the overhaul brought on by the TCJA. That said, some tax credits do still exist. Find out if you qualify for one or more of the following:

  • Work Opportunity Tax Credit
  • Small Business Health Care Credit
  • New Markets Tax Credit
  • Research and Development Credit
  • Credit for starting a new retirement plan (small businesses)

Capital Asset Investments –

This is a tried and true method for reducing taxable income—purchasing equipment and/or other qualified capital assets. Be sure that you take advantage of the TCJA bonus depreciation laws.

Deferring Income and/or Accelerating Expenses –

We mentioned this earlier, but it bears repeating. Consider how you can either defer income or accelerate expenses in order to lower your taxable income. Popular methods include:

  • Waiting to send December invoices until the end of the month in order to defer income into the following year
  • Delaying the delivery of goods and services until January
  • Putting deductible expenses onto a credit card then wait until January to pay it off

Because some of these methods are closely regulated or can have an impact on your QBI deduction, we highly recommend consulting an expert before adding the into your end-of-year plan.

Start Your Year-End Planning Today!

It always seems like you’ll have more time! 2019 is rapidly winding down, so the time to get your year-end tax plan in place is now. There is still enough time left to take steps that will have a significant positive impact on your tax liability for 2019. Reach out to your accounting advisor today.