There is Still Time to Trim Your 2019 Tax Tab — But You Have to Act Soon

By Steve Kaufman

 

 

We’re in the thick of the holiday season, and this should be as joyous a time as possible for seniors and others. But, as we move into the very end of the year, it’s also time to start thinking about the income taxes we’ll have to pay to Uncle Sam in just a few months.

This isn’t fun, and it typically requires more effort among seniors than younger folks because far fewer of them have jobs that automatically deduct their payroll taxes all year on their chief source of income. 

Nonetheless, let’s get into the spirit of the season and make the best of things. With this in mind, here are some tips to make your 2019 tax tab as palatable as possible.

 

  • If you turn 70 this year, or are already in your 70s, 80s or 90s, don’t forget that you have pay RMDs (required minimum distributions) from your retirement accounts by December 31. If you miss the deadline, you could be hit with a 50% penalty on the shortfall. In traditional IRAs, you can easily calculate the RMD for each account you own and then take the total RMD from one or any combination of these IRAs.

 

  • If your single or spouse income is not particularly high, consider taking some profits from stocks, in particular, if you qualify for the 0% long-term capitals gains tax rate. A married couple filing jointly qualifies with income up to $78,750. So, for example, if they have $65,000 of income in 2019, the couple could sell investments for a profit of $13,750 and pay no tax. (Singles with income up to $39,375 qualify for the 0% rate.)

 

  • Remember to harvest your losses in taxable accounts if you have them, especially if you own stocks in what has been the best year for the market since 2013. You may have some stocks, possibly even mutual funds, fitting the bill. If so, sell them and use the losses to offset your profits in other investments. Make sure you line up your short-term losses, if any, with short-term gains and do the same with long-term losses and gains. 

 

  • See if it’s possible to bunch deductions to save on taxes. With a huge increase in the standard deductions in comparison to past years, it’s admittedly harder to make itemizing expenses worthwhile. But if you are close – say, for instance, that you or your spouse had high, not fully insured medical expenses – you could combine them with, say, a sizable charitable gift this year and increase your itemized tax deductions for 2019 over the standard deduction threshold. (Unreimbursed medical expenses can be deducted if they exceed 10% of your adjusted gross income.). 

 

If instead you waited until 2020 to make the charitable gift and had no major medical expenses next year, you might wind up taking the standard deduction anyway.

 

  • If you’re still working part-time and are in your early to mid-60s and don’t have a retirement plan at work, it may be smart for you and/or your spouse to contribute up to $7,000 in an IRA and deduct it. Single taxpayers covered by a workplace retirement plan can also deduct traditional IRA contributions if their income is between $64,000 and $74,000. For a married couple filing jointly, the income phase out is $103,000 to $123,000 if the spouse making the IRA contribution is covered by a workforce retirement plan.

 

  • If you’re self-employed, as many seniors still are, you can also contribute up to $62,000 to a solo 401(k) plan — available to anyone with self-employment or freelance income. (Your contributions can’t exceed your self-employment or freelance income.)

 

  • If you’re the parent or grandparent of a college student, you might be able to lower your 2019 tax bill by prepaying the tuition bill due for the next term.  And, courtesy of the American Opportunity Tax Credit, you don’t need to itemize to claim this tax break. This is available if the student in question is in his or her first four years of undergraduate education. The credit is worth up to $2,500 for each qualifying student.

 

  • For seniors whose tax returns are not at all complicated, Uncle Sam is also now offering a psychological, if not financial, lift. The IRS recently released the second draft of federal form 1040-SR, U.S. Tax Return for seniors. The form has larger print and less fussy boxes and is intended to make life easier for some of the roughly 15 million senior households expected to file tax returns in 2020. The new form, roughly similar to the Form 1040EZ, is available for seniors 65 or older.

 

If possible, seniors would be well advised to capitalize on any tips above, except the last one, which is simply a matter of convenience.

The changes in federal income tax law two years ago – changes that set the stage for higher standard deductions and diminished opportunities to capitalize on itemized deductions – are almost certainly here to stay until the last day of 2025. This is true even though the federal deficit is ballooning again. Even if Democrats take over the White House next year, altering tax legislation with complex provisions mid-stream is a rare and highly onerous task. 

So, clearly, seniors who want to maximize tax savings must be proactive.

Share Button
Comments are closed.

 

Copyright © 2020 AFYI Holdings Group, LLC. All Rights Reserved. No part of this article may be reproduced without the express written consent of AFYI Holdings Group, LLC.

Annuityfyi.com - Prefooter

Share On Facebook
Share On Twitter
Share On Linkedin
Share On Pinterest