End of Year Money Moves

Here are some things you might consider before saying goodbye to 2019 

What has changed for you in 2019? Have you started a new job or officially retired? Have you started a family? Have you made additional income that you were not expecting at the beginning of the year? Have you received a stock award? Have you received any inheritances? If notable changes occurred in your personal or professional life, then you will want to review your finances before this year ends and 2020 begins.

Do you practice tax-loss harvesting? That is the art of taking capital losses (selling securities worth less than what you first paid for them) to reduce taxes by offsetting gains and/or income. You might want to consider this move, which may lower your taxable income generated by short-term gains.

In fact, you could even take it a step further; If you have more capital losses than gains, you can use up to $3,000 a year to offset ordinary income and carry over the rest to offset gains in future years. When you live in a high-tax state, this is one way to defer tax.1 Please be aware that these rules vary by state. New Jersey for example does not follow the federal loss carryforward rules, while New York does. 

If you want to sell a security to take a tax loss, it’s important to also understand the wash-sale rule. Tax-loss harvesting takes advantage of significant movements in the markets to capture investment losses and should be done with the guidance of a financial professional you trust.1 If you recall, last December the markets were almost 20% off their highs and down about 9% for the month. This extreme volatility in the 4th quarter last year was a perfect opportunity to lock in some losses which could have been used to offset the significant gains we have experienced this year. An active tax-loss harvesting strategy would have wiped out a large portion of taxable gains for 2019.

Tax efficient investing through tax loss harvesting is one of the few “riskless” ways to increase performance. You really need to consider your net investment return after taxes, as it is all about what you “keep” at the end of the day.

Do you want to itemize deductions? You may just want to take the standard deduction for 2019, which has ballooned to $12,200 for single filers and $24,400 for joint filers because of the Tax Cuts & Jobs Act. If you do think it might be better for you to itemize, now would be a good time to get the receipts and assorted paperwork together. While many miscellaneous deductions have disappeared, some key deductions are still around: the state and local tax (SALT) deduction, now capped at $10,000; the mortgage interest deduction; the medical expense deduction and the deduction for charitable contributions, which now has a higher limit of 60% of adjusted gross income.2,3 Have you looked into different strategies that will allow you to recapture your charitable deductions?

Could you ramp up 401(k) or 403(b) contributions? Contribution to these retirement plans may lower your yearly gross income. If you lower your gross income enough, you might be able to qualify for other tax credits or breaks available to those under certain income limits.

Do you have a C-Corp? Are you looking for ways to save money, reduce your tax burden and not be subjected to ERISA rules? Have you explored a defined benefit plan option but felt it doesn’t currently make sense? With the guidance of an experienced financial professional, you can implement planning strategies to reduce your income tax and/or allow you to offer the ideal benefit plan for key employee retention, without creating outside liability for you or your employee.

Are you thinking of gifting? How about donating to a qualified charity or non-profit organization before 2019 ends? Your gift may qualify as a tax deduction. You must itemize deductions using Schedule A to claim a deduction for a charitable gift.4,5

See that you have withheld the right amount. If you discover that you have withheld too little on your W-4 form so far, you may need to adjust your withholding before the year ends.

What can you do before ringing in the New Year? Talk with a financial or tax professional now rather than in February or March. Little year-end moves might help you improve your short-term and long-term financial situation.