handout: 2019 year-end tax planning · 2019 ordinary income tax bracket vs. long-term capital gains...

2019 Year-End Tax PlanningNew Year... New Opportunity!!

Jeffrey LevineCPA/PFS, CFP ®, CWS ® MSAAdvisor. CEO, Director of Financial Planning, BluePrint Wealth AllianceBlogger. Dir. of Advisor Education, Nerd’s Eye View, kitces.comEducator. Creator, Program Leader, Savvy IRA Planning®

Tweeter. @CPAPlanner, twitter.com/CPAPlanner

Handouts/Additional Materials at: kitces.com/AICPAOCTW19

Quick Message

• The general information contained in this web seminar is provided by the American Institute of Certified Public Accountants as a service to the public and our members. It is not intended to serve as tax, legal or any other professional advice applicable to any particular person or matter.

AICPA PFP Section & 360 Degrees of Financial Literacy

Today’s speaker

AICPA PFP Section & 360 Degrees of Financial Literacy3

Jeffrey Levine, CPA/PFS, CFP®, CWS®, MSA

Advisor. CEO, Director of Financial Planning, BluePrint Wealth AllianceBlogger. Director of Advisor Education, kitces.comEducator. Creator, Program Leader, Savvy IRA Planning®Tweeter. @CPAPlanner

© 2018 Michael Kitces | kitces.com Handouts/Additional Materials at: kitces.com/AICPAOCTW19

360-Degree View

• Take a 360-degree view of your finances to improve your future.

4

Integrated personal financial

plan

Evaluate Tax Strategy

Evaluate Estate Strategy

Evaluate Retirement

Strategy

Evaluate Risk Management

Strategy

Evaluate Investment

Strategy


The Only Thing Constant is Change

•Each year the rules and/or the interpretation of the rules change dramatically, but…

…this year the changes are BIG!

•There are always new– Laws

– Revenue rulings

– Private letter rulings

– Tax Court cases

– IRS notices

– IRS announcements and other guidance

5


Maximize Contributions to Tax-Favored Plans

•401(k) and similar plans–Elective deferrals: $19,000

–Catch-up contribution: $6,000

–Overall limit: $56,000

6


Maximize Contributions to Tax-Favored Plans

• IRAs

–“Regular” contribution: $6,000


–Age 50+

• HSA limits:

–Family HDHP: $7,000

–Self-only HDHP: $3,500


–Age 55+

7


Spend Through Flexible Spending Accounts

•General rule: “Use it or lose it”

•Employers may:–Adopt a grace period of up to 2 ½ months

• or–Allow up to $500 to be carried over to 2020

•Spend any excess on FSA-eligible purchases

8


Double-check Estimated Taxes/Withholdings

• IRS website offers a free tool/calculator

•Among the groups, in particular, who should check their withholding are people who:– Belong to a two-income family.

– Work two or more jobs or only work for part of the year.

– Have children and claim credits such as the Child Tax Credit.

– Have older dependents, including children age 17 or older.

– Itemized deductions on their 2017 tax returns.

– Earn high incomes and have more complex tax returns.

– Received large tax refunds or had large tax bills for 2018.

9


Take Advantage of Workplace OpenEnrollment Periods

•Many employers hold open enrollment periods towards the end of the year

•Consider changes to:–Insurance programs

–FSA programs

–Retirement plans

10


Take Advantage of Medicare Open Enrollment

•October 15th – December 7th

•Switch between Medicare and Medicare Advantage

•Change Medicare Advantage plans

•Change Medicare Part D plans

11


Potential Solutions for Low Estimated Tax Payments/Withholdings

•Make additional estimated tax payments–Treated as paid when actually paid

• Increase withholdings–Treated as paid ratably throughout year

–Salary from work?

–Retirement account distributions?

–Social Security benefits?

12


Roth IRA Conversion Before Year-End?

•As long as the funds leave you traditional account by December 31, 2019, it will be considered a 2019 Roth IRA conversion... Even if the funds don’t get into the Roth IRA until 2020

•Most Americans have a lower tax rate in 2019 than they did pre-TCJA

•Roth IRA conversions are irrevocable transactions–Changed by tax cuts and jobs act

13


Take All RMDs… Correctly!

• Verify that all RMDs have been correctly calculated

• Ensure that an RMD has been taken from each of your employer-sponsored retirement plans

–Exception – RMDs for 403(b) plans can be aggregated

• Make sure that you have taken a distribution from at least one your IRAs large enough to satisfy the RMD requirement for all of your IRAs

• Double-check to make sure RMDs have been correctly distributed from any inherited retirement accounts you have

14


Qualified Charitable Distributions

•QCD vs. “regular” charitable contribution–QCD

–No deduction

–Not added to income

– “Regular” charitable contribution

– IRA distribution added to income

– Itemized deduction

–Charitable deductions may be limited

–Clients may not itemize

–Does not prevent reduction of tax benefits tied to AGI/MAGI

15


Qualified Charitable Distributions

•Overview of key rules–Must be 70 ½ or older on the date the QCD is made

–Funds must go right from an IRA owner’s IRA to the charity

–Checks made payable to charity also qualify

–Can be made for up to $100,000 and is counted towards fulfillment of RMD

–Amount needs to be entirely deductible, had it been made with non-IRA funds

–No concert tickets, books, CDs, DVDs or other gifts in return

16


Basic Tax-Loss Harvesting

•Check to see if you have any investments with losses in your portfolio

• If so, it may pay to sell them prior to the end of the year to offset capital gains

–Can offset up to all capital gains, plus $3,000 of ordinary income

•Be careful of the “wash sale” rule

17


Take Advantage of “Free” Step-Up in Basis

•Check to see if you will be in either the 10% or 12% ordinary income brackets

•Sell investments with a gain

•Keep taxable income (including gains) to less than the top of the 12% bracket (approximately)

•Buy the investment right back

18


#1 - TAKE ADVANTAGE OF “FREE” STEP-UP IN BASIS

2019 Ordinary Income Tax Bracket vs. Long-term Capital Gains Brackets

19

Single Filers Taxable Income Is Between

Joint Filers Taxable Income Is Between

Ordinary Income Tax

Rate

Long-Term Capital Gains

Rate

Difference Between Ordinary Income Tax Rate and Long-Term Capital Gains Rate

$0 - $9,700 $0 - $19,400 10.00% 0.00% 10.00%$9,701 - $39,375 $19,401 - $78,750 12.00% 0.00% 12.00%$39,376 - $39,475 $78,751 - $78,950 12.00% 15.00% -3.00% $39,476 - $84,200 $78,951 - $168,400 22.00% 15.00% 7.00%

$84,201 - $160,725 $168,401 - $321,450 24.00% 15.00% 9.00% $160,726 - $204,100 $321,451 - $408,200 32.00% 15.00% 17.00% $204,101 - $434,550 $408,201 - $488,850 35.00% 15.00% 20.00%$434,551 - $510,300 $488,851 - $612,350 35.00% 20.00% 15.00%

$510,301+ $612,351+ 37.00% 20.00% 17.00%

Sheet1

Single Filers Taxable Income Is BetweenJoint Filers Taxable Income Is BetweenOrdinary Income Tax RateLong-Term Capital Gains RateDifference Between Ordinary Income Tax Rate and Long-Term Capital Gains Rate

$0 - $9,700 $0 - $19,40010.00%0.00%10.00%

$9,701 - $39,375 $19,401 - $78,750 12.00%0.00%12.00%

$39,376 - $39,475$78,751 - $78,95012.00%15.00%-3.00%

$39,476 - $84,200 $78,951 - $168,40022.00%15.00%7.00%

$84,201 - $160,725 $168,401 - $321,450 24.00%15.00%9.00%

$160,726 - $204,100 $321,451 - $408,200 32.00%15.00%17.00%

$204,101 - $434,550$408,201 - $488,85035.00%15.00%20.00%

$434,551 - $510,300$488,851 - $612,350 35.00%20.00%15.00%

$510,301+ $612,351+ 37.00%20.00%17.00%

Sheet2

Sheet3


Deduction Bunching

•Standard deduction vs. itemized deductions

•Consider bunching expenses, such as:–Medical expenses

–Charitable contributions

–Donor-advised fund?

20


Utilize a Qualified Opportunity Fund (QOF) to Defer Capital Gains

•Created by TCJA

•Offer host of tax benefits–Deferral of gain until as late as 12/31/26

–10% increase in basis of still-deferred gain after 5 years

–5% increase in basis of still-deferred gain after 7 years

–Tax-free “gain-on-gain” growth if QOF is held for 10+ years

•180 days to reinvest gain–1231 gain reinvestment window begins on last day of the year

21


Maximize the Qualified Business Income (QBI) Deduction

•Key thresholds:–Joint filers: $321,400*

– Married filing separate: $160,725*

–All other filers: $160,700*

• If income is below thresholds, deduction is available

• If income is above thresholds, deduction may be phased out.–Speak to a tax professional ASAP!

*Taxable income, less capital gains

22


Hire Children

•Children get the $12,400 standard deduction, too!–Kiddie-tax applied to unearned income

•Be mindful of child labor laws

•Must be bone fide work

23


Stop Gifting?

• The Federal estate tax is no longer a concern for most Americans

• Many assets receive a step-up in basis at death–Beneficiaries can sell assets that appreciated during the decedent’s lifetime (after inheritance) with little to no tax liability

–Receipt of the same investments as a gift would result in the recipient “picking up” the transferor’s basis!

24

Where to Turn for Help?

Personal Financial Planning SectionTax | Retirement | Estate | Risk Management | Investments

A CPA Financial Planner and a CPA/PFS are trusted advisors who…

• Operate at the highest professional level, acting in the clients’ best interest.

• Integrate advanced tax planning concepts with the entire financial and investment plan.

• Adhere to high standards as required by the Code of Professional Conduct and the Statement on Standards in PFP Services

• Are regulated by state boards of accountancy.

26 Personal Financial Planning SectionTax | Retirement | Estate | Risk Management | Investments

http://www.aicpa.org/research/standards/codeofconduct/pages/default.aspxhttp://www.aicpa.org/InterestAreas/PersonalFinancialPlanning/Resources/PracticeCenter/ProfessionalResponsibilities/Pages/PFPexposuredraft.aspx

360 degrees of financial literacy 360financialliteracy.org

Personal Financial Planning Section Tax | Retirement | Estate | Risk Management | Investments

28

http://www.360financialliteracy.org/

Questions?

Personal Financial Planning SectionTax | Retirement | Estate | Risk Management | Investments

2019 Year-End Tax Planning�New Year... New Opportunity!!�Quick MessageToday’s speaker360-Degree ViewThe Only Thing Constant is ChangeMaximize Contributions to Tax-Favored PlansMaximize Contributions to Tax-Favored PlansSpend Through Flexible �Spending AccountsDouble-check Estimated Taxes/WithholdingsTake Advantage of Workplace Open�Enrollment PeriodsTake Advantage of Medicare �Open EnrollmentPotential Solutions for Low Estimated Tax Payments/WithholdingsRoth IRA Conversion Before Year-End?Take All RMDs… Correctly!Qualified Charitable DistributionsQualified Charitable DistributionsBasic Tax-Loss HarvestingTake Advantage of “Free” Step-Up in Basis2019 Ordinary Income Tax Bracket vs. Long-term Capital Gains BracketsDeduction BunchingUtilize a Qualified Opportunity Fund (QOF) to Defer Capital GainsMaximize the Qualified Business Income (QBI) DeductionHire ChildrenStop Gifting?Where to Turn for Help?A CPA Financial Planner and a CPA/PFS are trusted advisors who…www.aicpa.org/pfp | Consumer360 degrees of financial literacy 360financialliteracy.orgQuestions?

handout: 2019 year-end tax planning · 2019 ordinary income tax bracket vs. long-term capital gains...

Documents