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Tax Tasks to Tackle Now

It seems we’re barely finished with the pumpkin pie before we’re toasting in the new year. These last few weeks of the year are full of feasting, partying, and visiting with friends and family. However, though it’s not nearly as much fun, it’s important to also take a few minutes to make sure your year-end tax checklist has been completed.

One of the easiest ways to reduce your tax burden is to take full advantage of any tax-deferred retirement plans available to you. For 2019, the maximum amount that can be contributed to 401(k), 403(b), and similar accounts is $19,000. Taxpayers over the age of 50 can contribute an additional $6000 catch-up amount. For traditional IRAs, the limit this year is $6000 with an additional $1000 catch-up for those over 50 years old.

In a similar vein, if you are one of the 40% of Americans who are eligible for a health savings account (HSA) at work due to having a high-deductible health plan, be aware that contribution limits rose slightly this year. For a self-only plan, $3500 can be contributed; those participating in family plans can now contribute up to $7000. Either plan allows a $1000 catch-up, but this is only available to those who are 55 or older. These limits apply to the total of both employer and employee contributions. Remember, unlike medical flexible spending accounts, there is no “use it or lose it” rule for HSAs; funds continue to grow tax-free, making these accounts an excellent way to save for future health costs.

With the S&P, Dow, and NASDAQ indexes all hitting new highs in the past week or so, if you have investments in a taxable account, you’re probably looking at some healthy gains for the year. Now is the time to check your portfolio to see if you have any stocks that can be sold for a loss to offset some of the gains you’ll soon be reporting. And speaking of selling, remember you’ll pay tax on short-term gains (on equities held less than a year) at your normal income tax rate but long-term capital gains continue to benefit from favorable tax rates of 0% to 20%. While taxes shouldn’t be the only consideration when making buy/sell decisions, it’s wise to include tax implications in your investment plan.

If you are subject to a Required Minimum Distribution (RMD) from your qualified retirement plan (generally, taxpayers over the age of 70 ½ with investments in traditional IRA or 401(k) plans are), make sure you take it before the end of the year to avoid the 50% penalty for not doing so. If you are in a giving mood, you can have your RMD transferred directly to a qualifying charity using a Qualified Charitable Distribution (QCD). Even though this satisfies the RMD requirement, it is considered a non-taxable distribution, allowing you to avoid paying the usual taxes on the amount donated. The QCD cannot also be deducted as a charitable gift on Schedule A, but with most taxpayers no longer itemizing this probably won’t be a factor at tax time.

As the disclaimer at the top of our blog page says, this is general information that is not intended as specific advice. Before acting on any of the suggestions in this post, please consult with your financial advisor and tax professional (hopefully that’s us!) to make sure you are following all the little quirks of the tax law that might apply to your individual situation. Go on and take care of these year-end moves now so you can settle in for some holiday fun in the coming weeks!

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