Year-End Tax Planning for Individuals

The end of the year provides the opportunity for many to spend time with family and friends sharing special moments and important traditions. Whether it’s celebrating Christmas, Hanukkah or another religious holiday or just a New Year Eve celebration in downtown Atlanta, it’s the time to leave business matters for a later date. Before making the switch to “low power mode” there are a few important items to complete.

One that should not be overlooked is year-end tax planning. Whether you’re a Georgia business owner or individual taxpayer, it’s the perfect time to make last-minute changes which can result in meaningful savings.

While the Tax Cuts and Jobs Act (tax reform) modified some tax planning opportunities, there are many that remain available. To provide guidance, Windham Brannon has provided summary guidance on year-end planning opportunities below.

Key Changes from Tax Reform

There were many changes made that have impacted overall tax rates and planning opportunities. These include a reduction of the highest tax brackets from 39.6% to 37%, lower tax rates until 2025 (unless extended by Congress), an increase of the standard deduction from $12,200 for single and $24,400 for married couples and the reduction in the number of itemized deductions.

Year-End Tax Planning Opportunities

  • Harvesting Capital Gains – This approach is used by taxpayers that expect to be in a higher tax bracket in the future. By selling investments that have experienced a significant gain while the taxpayer is in a lower tax bracket, they are able to make a tradeoff between a lower tax rate and making an immediate tax payment. It’s important to note that capital gains are taxed at 0% for taxpayers in the lowest two tax brackets 10% and 12%.
  • Harvesting Capital Losses – By selling investments resulting in a capital loss, a taxpayer can offset gains from other investments in the same tax year. If the loss is greater than the gain in a specific year, the additional loss can be applied against $3,000 per year of other income. It’s important to be aware of the wash sale rule which prohibits the deduction of loss if the taxpayer purchases a substantially similar investment within 30 days prior to or after the sale of the investment.
  • Qualified Opportunity Zones – This program offers taxpayers the possibility of three main tax incentives by investing in certain “low-income communities” through Opportunity Zone Funds. Investor Benefits are:
    1. Temporary deferral of gains for up to eight years
    2. Reduction of deferred gain (up to 15 percent reduction)
    3. Permanent exclusion on Opportunity Fund gains
  • Qualified Business Income (QBI) Deduction – This is an up to 20% deduction of business income for owners of pass-through entities such as S-corporations, partnerships and limited liability companies (LLCs). The deduction is determined by the taxpayer’s income, among other factors. In 2019, the limitations phase-in when taxable income exceeds $160,700 for single filers or $321,400 for joint filers and could possibly be fully phased out when income reaches $210,700 and $421,400, respectively. If you are a “qualified trade or business,” you may still be able to receive a deduction if you are above the upper limits.
    Maximize Retirement Plan Contribution – Taxpayer should also consider making additional elective contributions to a tax-deferred plan such as a 401(k), 403(b), IRA or another qualifying plan. The contribution limit for 2019 is $19,000 with an additional allowance of $6,000 to taxpayers over 50 to make catch up contributions.
  • Charitable Contributions – One of the changes from tax reform as outlined above was an increase in the standard deduction. If a taxpayer wants to deduct charitable contributions, the taxpayer must have total itemized deductions, including the contributions, in excess of the standard deduction. An alternative way to leverage these contributions is to bunch several years of donations and contributions into a single year. Consider implementing a Donor Advised Fund (DAF) which permits the opportunity to deduct the contribution in the current year, while allowing time for the disbursement of funds to an organization.
  • Gift Tax Exclusions – Taxpayers should not forget about the gift tax exclusion of $15,000 per taxpayer per recipient. It’s also important to note gifts paid directly to institutions for medical care or tuition expenses are not subject to the $15K exclusion.

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There are several practical and strategic steps individual taxpayers can take before year-end to reduce taxes. The key is to develop a plan of action in the closing weeks to ensure you are in the best position possible. If you have questions about tax planning or need assistance with a tax compliance issue, Windham Brannon professionals can help. For additional information complete the contact form on the right or call us at 404-898-2000.