Consider maneuvers that could help you shed your tax tab for 2019 and years beyond that.
Pull up your 2018 tax report for a layout of how to approach this year’s taxes. This year’s tax rules are almost identical to last year’s. What are the factors that are adjusted annually that will keep more money tax free and in your pockets? A good amount of tax-reform changes remain in effect all the way through 2025 and any long term moves you can make right now will follow within the same framework.
Keep on track to max out your retirement savings for the year! If your 50th birthday is at anytime this 2019 year you are now going to be qualified for catch-up contributions. For those of you who are 50 and older can now stash up to $7,000 in an IRA and up to $25,000 in a 401(k). To be qualified to contribute to an IRA for 2019 through the tax-filing deadline in 2020, you must max out your 401(k) by the end of the year. Keep in mind to boost any amount you put into other pretax savings.
For nearly a decade the rules allowing for a tax-free Qualified Charitable Distribution (QDC) from an IRA to a charity has been jumping back and forth from being reinstated. Obtaining the tax benefits for a QCD from an IRA to a charity this year has specific steps to take in order to be strategic with your RMDs.
Be sure to do the QCD before you satisfy your RMD. For example if your RMD is $30,000 and you want to do a QCD of $15,000, you may ask your IRA custodian to send $15,000 and put the other $15,000 in your bank account. Your RMD will be satisfied while only half of your income will be added to your AGI for 2019.
Gifts for Grandkids
This is one of the most joyous ways to lower your tax tabs for 2019. With school right around the corner, consider gifting money to help pay for your grandchildren’s tuition. You can avoid gift-tax issues when paying for tuition directly. In case your grandchildren are not of age for school yet you can set up a 529 college-savings account that may be eligible for a state income tax deduction. You can contribute up to five year’s worth of gifts at once in a 529 account. One individual is allowed a $15,000 annual gift-tax exclusion amount which comes out to $75,000 if putting it into your grandchild’s 529 account. For those who are married and joint filing that is up to $150,000 that may be tax deducted!
Keep yourself accountable by comparing your expected tax tab and how much you have already paid thus far into the year. Be sure to accurately rate whether or not you are on track to avoid underpayment penalties for this year. If you are able to 90% of your 2019 tax tab before the year ends you will avoid any unnecessary penalties. It is reported that the IRS will be a lot more stricter and less lenient on underpayment penalties compared to last year. So be sure to keep yourself accountable by keeping track of how your progress is going so far.
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