2019 Year‐End Planning for Individuals
Last year, we saw the most significant tax legislation in the United States since the 1980s though the Tax Cuts and Jobs
Act (TCJA). Although, in comparison to 2018, 2019 may seem inconspicuous, it is still essential to plan for year‐end. As
always, it is especially important to plan for year‐end if the taxpayer experienced any major life events, including marriage,
divorce, death, children, buying/selling a home and changing jobs.
Fraudulent activity remains a significant threat
Our firm takes security very seriously and you should as well. Fraudsters continue to refine their techniques and tax
identity theft remains a significant concern. Beware if you:
- Receive a notice or letter from the Internal Revenue Service (IRS) regarding a tax return, tax bill or income that
doesn’t apply to you - Get an unsolicited email or another form of communication asking for confidential information
- Receive a robocall insisting you must call back and settle your tax bill
- Make sure you’re taking steps to keep financial information safe. Let us know if you have any questions or
concerns about how to go about this
Income Planning
Individual taxpayers are required to file their 2019 Form 1040 or automatic six‐month extension by the standard April 15,
2020.
For most individuals, income is taxable in the year received, and expenses are deductible in the year paid. Tax brackets
are indexed for inflation.
If the taxpayer anticipates taxable income to be higher in 2019 than 2020, where possible, deferring income until 2020
should be considered. If the taxpayer anticipates taxable income to be higher in 2020, it may be beneficial to accelerate
income to 2019.
The timing of transactions generating capital gains and losses should be considered whenever possible. Capital losses may
be fully deducted against capital gains and also may offset up to $3,000 of ordinary income ($1,500 for married filing
separately). In general, when losses are taken, long‐term losses are first matched against long‐term gains, and short‐term
losses against short‐term gains. If there are any remaining losses, they may be used to offset any remaining long‐term or
short‐term gains, or up to $3,000 (or $1,500) of ordinary income. If a taxpayer sells stock at a loss, they can repurchase
the same stock, but must wait 31 days or else be subject to the wash sale rules which would disallow the loss.
To avoid capital gains, the taxpayer may consider fulfilling charitable donations by using appreciated stock, especially if
doing so may result in overall itemized deductions exceeding the individual’s standard deduction for 2019.
For taxpayers over age 70.5, charitable contributions paid direct from Individual Retirement Accounts are excluded from
income.
Standard and Itemized Deduction Planning
Standard Deduction versus Itemized Deduction Planning: Deduction planning is also affected by the standard deduction.
As noted earlier, for 2019 returns, the standard deduction is $12,200 for single filers and married couples filing separately,
$24,400 for married couples filing jointly and surviving spouses, and $18,350 for head of household. As can be seen from
the numbers, for 2019, the standard deduction for married taxpayers is twice the amount as that for single taxpayers. If
itemized deductions are relatively constant and are close to the standard deduction amount, little or no benefit will be
gained from itemizing deductions each year. But simply taking the standard deduction each year means the loss of the
benefit of itemized deductions that exceed the standard deduction. To maximize the benefits of both the standard
deduction and itemized deductions, consider adjusting the timing of deductible expenses, i.e., “bunching,” so that they
are higher in one year and lower the following year. This can be accomplished by paying deductible expenses in 2019, such
as mortgage interest due in January 2020, state estimated tax payments due in early 2020, or doubling up on charitable
contributions every other year. Fewer taxpayers will benefit from itemizing without proper planning. Taxpayers can revert
between itemizing and taking the standard deduction each year.
- Medical and Dental Expenses: To claim an itemized deduction for unreimbursed medical expenses, the taxpayer
must have qualified medical expenses greater than 10% of the taxpayer’s adjusted gross income (AGI). - State and Local Taxes (SALT): The itemized deduction for all nonbusiness state and local tax remains limited to
$10,000 for married taxpayers and $5,000 for those filing separately. This includes all taxes withheld, estimated
payments, and property taxes. Consider the timing of payment for property and quarter 4 estimated tax to
maximize this deduction. Alternatively, sales tax may be used as an itemized deduction instead of deducting state
and local income tax. - Interest You Paid: The TCJA limited mortgage interest on $750,000 of indebtedness acquired after December 15,
2017. This limitation applies to the individual taxpayer and not the residence, meaning unmarried co‐owners are
able to take the deduction on up to $750,000 each of indebtedness acquired. The deduction of home equity
interest remains suspended, unless used to purchase, construct, or substantially improve your home. - Gifts to Charity: The pledging of a charitable contribution is not deductible until it is paid by the end of the tax
year, either outright or with borrowed funds (i.e., a credit card). Keep mind that you may donate appreciated
stock and if over the age of 70.5, you can make direct contributions from your IRA. Noncash charitable
contributions of more than $500 may be limited and if more than $5,000 may require a valuation - Casualty and Theft Losses: Casualty and theft losses remain limited to a federally declared disaster area.
- Other Itemized Deductions: Gambling losses, estate taxes on income in respect of a decedent, repayments of
income of more than $3,000, special job related expenses of the handicapped, and unrecovered cost of annuities
on a decedent’s final return.
Retirement Savings
Taxpayers may be eligible to take a deduction for savings towards the following qualified retirement plans:
- Traditional IRAs: Deductible contributions are limited to $6,000 in 2019 and must be made by April 15, 2020. An
additional $1,000 deductible contribution is available for taxpayers age 50 and up. Spousal IRA contributions are
limited to the lesser of $6,000 or both spouses’ compensations less the other spouse’s Traditional and Roth
contributions. These could be further limited based on income and participation in an employer retirement plan. - §401(k), §403(b), SEP, and other eligible §457 government plans: Deductible contributions are limited to $19,000
in 2019 and $19,500 in 2020. An additional $6,000 towards the taxpayer’s 2019 contribution is allowed for
taxpayers age 50 and up.
Nondeductible contributions for a Roth IRA are limited to $6,000 and $19,000 for a Roth §401(k). Earnings in a Roth
retirement plan grow tax‐free.
Child and Dependent Tax Credits
The child tax credit of $2,000 per qualifying child remains intact for 2019. Up to $1,400 of this credit is refundable. A $500
nonrefundable family credit is available for dependents other than a qualifying child. The credit phase out threshold is
$400,000 for married taxpayers filing jointly.
Education Credits
Taxpayers paying higher education expenses on behalf of a student may be eligible for either the American Opportunity
Tax Credit (AOTC) or the nonrefundable Lifetime Learning Credit (LLC). The AOTC is limited to qualified tuition and fees
for the first four years of post‐secondary education, paid on behalf of the taxpayer, the taxpayer’s spouse, or taxpayer’s
dependent. A maximum AOTC allowed is $2,500, phasing‐out at a modified AGI of $160,000 for married filing jointly.
The LLC is available to qualified tuition and related expenses paid on behalf of students enrolled in undergraduate,
graduate, and professional degree courses. The maximum LLC allowed is $2,000, phasing‐out when the taxpayer’s
modified AGI reaches $114,000 for married filing jointly.
Kiddie Tax
Kiddie tax applies to unmarried children under the age of 18 and full‐time students aged 18 – 23 with unearned income
greater than $2,200 and earned income of less than half of the amount of their support.
Unearned income exceeding $2,200 is subject to the fiduciary tax rates, which is 37% of income exceeding $12,750. A
child’s earned income is subject to the same tax rates as the single taxpayer.
Net Investment Income Tax (NIIT)
An additional 3.8% NIIT is levied on individuals with investment income and adjusted gross income exceeding $250,000
for married taxpayers and $200,000 for single taxpayers. Investment income includes, but is not limited to, interest,
dividends, capital gains, passive rental and royalty income and some annuities.
Alternative Minimum Tax (AMT)
AMT should continue to affect less taxpayers in 2019. The TCJA lowered tax rates for many individuals and increased the
AMT exemption. More importantly, with the changes to allowed itemized deductions, there are fewer adjustments to
taxable income for AMT.
Estimated Tax Payments
If you had a balance due or a refund on your 2018 return, consider adjusting wage or retirement withholdings for the
remainder of 2019. Estimated tax payments may also be made to reduce the amount of underpayment penalty. An
individual may be subject to an underpayment penalty if withholdings and estimated taxes are less than 100% of the prior
year’s tax or 90% of the current year’s tax. For married filing joint taxpayers with a 2018 AGI exceeding $150,000,
withholdings and estimated taxes should be at least 110% of their 2018 tax.
Annual Gift Tax Exclusion
The annual gift tax exclusion for allows each person to gift up to $15,000 without reducing their estate and lifetime gift
tax exclusion amount, currently $11,400,000. This means a married couple may gift any one person $30,000 together.
Foreign Bank and Financial Accounts
A Report of Foreign Bank and Financial Accounts (FBAR) must be filed for any U.S. individual or legal entity holding any
financial interest in or signature authority over foreign financial accounts with an aggregate value exceeding $10,000 at
any time in a calendar year. The due date for 2019 is April 15, 2020, or October 15, 2020 with an extension. Failure to
properly file an FBAR may result in civil penalties up to $10,000 per violation. Willful intent to disregard reporting a foreign
account may result in civil penalties equal to the greater of 50% of the account value or $100,000.
The Affordable Care Act (ACA) and your taxes
Recent tax law changes repealed the penalty that the ACA imposes on individuals who do not have health insurance.
However, other aspects of the ACA still are in place. Contact us if you have questions about how this affects you.
Please call our office at 843‐972‐3767 to discuss your potential tax‐savings opportunities.
We are happy to assist you to ensure that your goals continue to be met.