Understanding tax requirements and managing your tax bill should be a part of any financial plan. Some taxes can be deferred, and others can be managed through tax-efficient strategies. With careful and consistent preparation, you may be able to manage the impact of taxes on your financial efforts.
Your tax planning strategy should take advantage of all available tax deductions, tax credits and tax exemptions to limit the effect on your earnings and capital.
Physicians in certain states (such as California, Oregon, New York and New Jersey) may pay more, but our estimate is most doctors will wind up paying less in taxes under the new tax law. Here are 4 tips on how to get the most from your taxes:
The tax overhaul took away many of the strategies taxpayers could use to ramp up their itemized deductions. However, filers who plan their charitable giving may be able to get themselves over the new standard deduction and itemize — if they use a strategy called "bunching."
The charitable giving deduction remains for taxpayers who itemize. Under the new law, this break is limited to 60 percent of adjusted gross income for cash gifts, but you can carry forward by up to five years any amount that exceeds that. Single donors who fall short of the $12,000 threshold ($24,000 if married) can itemize on their tax returns if they “supercharge” their giving in one year.
Consider a married couple claiming the maximum property and state income tax deduction of $10,000, and this couple also paid $6,000 in mortgage interest in a year. They will need at least $8,000 of charitable gifts to hit the $24,000 standard deduction threshold. If this couple normally gives $6,000 to charity annually, they can accelerate their gifts by cramming two years of donations into one tax year. This way, they can itemize their deductions ($28,000) on their tax return in one year and take the standard deduction ($24,000) the next.
There may be a more advantageous strategy than donating cash. If you own appreciated stock or mutual funds, consider donating the appreciated assets from your portfolio, rather than cash from your bank account. The tax deduction for appreciated stocks or mutual funds is equal to the market value of the asset upon the donation (if the asset is owned for more than 12 months). This allows you to:
(1) Minimize your future capital-gains tax exposure.
(2) Increase your cost basis within your investment account by adding the cash that you would have donated to your investment account.
(3) Receive the same tax deduction as giving an equivalent amount of cash.
(4) Continue to support non-profit 501(c)(3) organizations more efficiently.
Employer-sponsored 401(k), 403(b) or 457 plans are a wonderful way to minimize your year-end tax exposure and increase your savings for retirement. Contributions to these employer-sponsored plans are made on a per paycheck basis and may even enable you to additional matching contributions from your employer. Pre-tax contributions to these plans will lower the amount of income you have to pay taxes on, ultimately reducing your tax exposure. The individual contribution limit for 2019 is $19,000.
If you earn self-employment income throughout the year, you may be eligible to open a qualified retirement account such as a SEP IRA. You have until the day you file your taxes, including extensions, to make your contribution. Like 401(k)’s, SEP IRA contributions are made on a pre-tax basis and allow you to lower the amount of income you have to pay taxes on.
The Importance of an Estate Plan
The information provided is not written or intended as specific tax or legal advice. Spaugh Dameron Tenny, LLC its employees and representatives are not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel.
As the Director of Financial Planning for Spaugh Dameron Tenny, Jordan applies his academic and practical experience in the creation and maintenance of the firm’s financial plans, as well as coordinating research efforts for products and strategies that may benefit clients. Originally from Canada, Jordan came to Charlotte on a golf scholarship where he attended Queens University of Charlotte. In addition, Jordan has a Master’s degree in Wealth and Trust Management.
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