As we approach 2019’s tax filing deadline, here are a few tips to help you prepare:
- Organize your tax documents (1099s, 1098s, K-1s, etc). Most CPAs send a tax organizer that can help key in on the particular documents and information needed to complete your return.
- Contribute to your IRA or SEP plan. If you file an extension, your IRA contribution still must be made by April 15. However, SEP contributions can be made up and until the extension deadline. The IRA contribution limit is $6,000 ($7,000 if age 50 or older) and the SEP contribution limit is 25% of earnings up to a $56,000 contribution.
- Itemize deductions if you have qualified expenses (mortgage interest, charitable donations, etc) in excess of the standard deduction amounts. If not, then claim the standard deduction. The standard deduction amounts are $12,200 if single, $24,400 if married, and $18,350 if filing as “head of household.”
- Work with a Certified Public Accountant (CPA) if you own a business, real estate, or have complexity to your tax situation.
Also keep in mind these tax changes coming in 2020:
- The standard deductions increase slightly: $12,400 if single and $24,800 if married. Ask your CPA about “bundling” deductions. For example, make 2 years worth of charitable donations, pay 2 years worth of property taxes in one tax year and itemize that year, then claim standard deduction every other year. The state and local tax deduction is capped at $10,000, so be sure to take that into account if you are considering bundling.
- The medical/dental deduction income threshold increases from 7.5% of AGI to 10% of AGI. This means that these expenses must exceed 10% of your adjusted gross income in order for you to be able to deduct them.
- Alimony payments are no longer deductible if you were divorced in 2019 or afterwards. This includes modifications to alimony agreements made in 2019 or thereafter.
- Most retirement plan contribution limits increase:
Retirement Plan 2019 2020
401(k) $19,000 $19,500
401(k) Catch up (age 50+) $6,000 $6,500
Simple Plan $13,000 $13,500
Simple Catch-up (age 50+) $3,000 $3,000
IRAs $6,000 $6,000
IRA Catch up $1,000 $1,000
SEP contributions remain at 25% of earnings but the limit increases to $57,000 in 2020. If you aren’t maximizing your retirement plan contribution, consider increasing it by 1% of your income each year until you reach the maximum.
- If you have a high deductible plan you may be able to contribute to a health savings account (HSA). Those contribution limits have increased as well, from $3,550 for single coverage and $7,100 for family coverage. The contributions are deductible and earnings grow tax free. Withdrawals are also tax free if used for qualified medical expenses.
- If you inherit an IRA in 2020 and are not the spouse of the deceased then you will now have to take the entire balance within 10 years. Exceptions include surviving spouses, minor children, chronically ill and disable individuals, along with beneficiaries not more than 10 years younger than the IRA owner. This is a big change from the past and will require proper planning to adjust for the inevitable increase in taxable income when you take distributions from an inherited traditional IRA.
- If you under or overpaid taxes in 2019 or changed jobs, use the newly released IRS form W-4 to determine a more appropriate amount to withhold from your paycheck for the rest of 2020.
As always, consult your CPA or tax advisor as you consider making decisions effecting your tax situation.
This information was prepared by HawsGoodwin Investment Management, LLC (HawsGoodwin Wealth) and should not be taken as financial advice, tax advice or a recommendation to buy or sell any security. This is for informational use only and should not be considered investment advice, tax advice, or an offer to sell any product. This material does not constitute a general or personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors and should not be relied upon to evaluate the merits of investing in any security or vehicle for investing. Investors should ensure that they obtain all current available information before making any investment. Investors should also make an independent assessment of the relevant legal, regulatory, tax, credit, and accounting considerations and determine, together with their own professional advisers if investing is suitable to their personal financial goals