Here are a few things you can do before the end of the year to keep your income taxes as low as possible.
- Due to the new tax legislation, many people are taking the new standard deduction. If you are still itemizing, you can still do the following to help reduce your tax bill:
- Pay your property taxes.
Real estate taxes and vehicle taxes are tax deductible. If your property tax bill is due early next year, you might want to pay it now and take the deduction. Please remember that the new cap on state and local tax deductions are $10,000 per year.
- Donate to charity. It pays to be charitable, especially at the end of the year. Donating cash is always a good idea (fully deductible up to 60% of your adjusted gross income). You can also donate household goods, clothing, and other items. Under the Pension Protection Act, you will need a written receipt for all charitable donations, and donated items must be in good or better condition. You can also deduct the cost of driving for charity at 14 cents per mile. You cannot take a charity deduction, however, for the value of your time or services when volunteering.
- Pay doctor bills, insurance premiums, buy eyeglasses, or stock up on prescription medications during the year. You can take a deduction for medical expenses exceeding 7.5% of your adjusted gross income.
- Pay your property taxes.
- Tax Harvesting. To offset capital gains, investors can lower their capital gains taxes by selling securities that have lost money. Losses offset gains dollar for dollar, and losses in excess of your gains can be deducted, up to $3,000 per year.
- Max out your retirement savings. Contributions to a retirement plan reduce your taxable income.
- Max out your Health Savings Account (HSA). If you have a Health Savings Account, make sure you are maxing it out for 2019. HSAs work similar to IRAs, you can make contributions towards them up through April 15th, 2020 and have contributions retroactively applied to your 2019 tax return.
- Boost business expenses. Business owners and independent contractors can buy office supplies, invest in new equipment, or pay bonuses to their employees. They should also review their retirement plans or decide about setting up a retirement plan. Many retirement plans need to be established by the end of the year if owners want to make tax-deductible contributions for the year. You will want to review what constitutes a legitimate business expense just to make sure it will be tax-deductible.
- 20% qualified business income deduction. Sec 199A provides for a 20% deduction with respect to “qualified business income” and certain other types of income. The deduction may be taken by individuals, estates, and trusts. The deduction for qualified business income is set to expire for tax year beginning after Dec 31, 2025.
- Sole-Proprietors should evaluate becoming an S-Corporation. Those who are self-employed, taxed as sole-proprietors should consider whether it makes sense for their business to be taxed as an S-Corporation. S-Corporations can provide considerable tax relief under the right conditions.
- Organize your financial records. Good record-keeping can really pay off at tax time. Not only will it make your tax preparation easier and faster, but you might uncover enough tax deductions to be able to itemize. More importantly, the IRS will require receipts and other records in the event of an audit. Business owners should be using accounting software such as Peachtree, QuickBooks, or Microsoft Office Accounting to ensure that all their income and expenses are recorded properly. Individual taxpayers may want to use Microsoft Money or Intuit’s Quicken to keep track of their personal spending. As an added bonus, these programs provide reports that summarize your tax deductions for faster tax preparation.
If there is anything we can help you with, please feel free to let us know.
Very truly yours,
LB&J Certified Public Accountants