End of Summer Tax Planning Tips

The sun is still shining, and kids are just starting back to school. It’s not tax season, so why think about tax planning? Even though it’s still technically summer, there are a few things you can do now to improve your tax situation.

Contribute to Your Retirement

If you requested an extension on filing your 2018 federal taxes, you know that you have until October 15, 2019 to submit your return. Did you also know that there are certain tax moves you can make now to both maximize your 2018 return and lessen your tax liability in 2019? If you’re self-employed and requested an automatic six-month extension to file taxes, you have until October 15 (or whenever you file your return, whichever comes first) to make a retroactive contribution to a SEP IRA.

A SEP plan is a simplified version of retirement savings in which only you, the employer, can make contributions for you or your employees. Your employer contributions are fully vested from day one and you can contribute to an employee’s (or your own) SEP IRA even after they turn 70 ½ – unlike a traditional IRA. You can supplement a SEP IRA with another retirement plan, and it won’t reduce your total contribution limits. As an owner, you can contribute up to 25 percent of net self-employment earnings up to $53,000. You can set up a SEP IRA anytime up to your tax return due date (including extensions).

On the flip side, if you contributed too much to your Roth IRA – in 2018, this amount was $5,500 or $6,500 for ages 50 and older – you can withdraw the excess amount. This will save you the six percent penalty on excess contributions.

Plan Charitable Contributions for Year-End

You already know the impact that Tax Reform had on charitable tax deductions. And if your adjusted gross income for 2019 is about to go into another tax bracket, consider bunching charitable deductions before year-end. This is a strategy where you lump as many deductible charitable expenses into one year as you can to achieve the benefit of itemizing your return. Whether your donations are cash, stocks, real property, or other assets, Donor-advised funds are another option to accomplish your philanthropic goals and reduce tax liability at the same time.

Other Bunching Strategies

Pulling other deductions into the same year is a strategy you can use for other expenses, too. Think of medical expenses and home-related interest deductions. In 2019, medical expenses returned to the 10 percent threshold, an increase from the temporary reduction of 7.5 percent for 2017 and 2018. There is a proposal floating around Congress to extend the 7.5 percent threshold, but until (and if that happens), plan for 10 percent.

You can also make extra mortgage payments if you want to take advantage of the mortgage interest deduction. Thinking about remodeling with a home equity loan? You can deduct the interest on that, too, with two caveats: the loan is used on your first (or second) home and the total home equity loans don’t exceed $750,000, or $375,000 if married filing separate. Deducting the interest on home equity loans

Make sure to reread our post on off-season tax and investment strategies to make sure you’re not missing anything on estate planning, SALT deductions, and more.

In the coming weeks, we’ll have more on our blog for 2019 year-end tax planning strategies. In the meantime, you can get started with these tips to minimize taxes this year, and set yourself up for 2020. Contact our office with questions on midyear tax planning.