While much attention has been given to the uncertainty surrounding new tax laws, many individual tax-planning opportunities remain that can help you mitigate your tax burden while staying compliant.
The Tax Cuts and Jobs Act of 2017 and the SECURE Act of 2019 introduced significant changes to the tax landscape, but opportunities for strategic tax planning persist. If your financial situation has changed this year, good planning can help you navigate these complexities and potentially reduce your tax liability.
Connecting with your CPA before year-end is a smart move. Here are several areas to discuss as you prepare for tax season:
Compare Your Year-to-Year Income
Has this year been financially better, worse, or on par with last year? Depending on the answer, you might need to adjust your tax withholdings or make additional estimated payments—particularly if you're newly retired. Take note of revised withholding tables and safe harbor rules to avoid penalties.
Additionally, paying property taxes before year-end may help you ensure a federal deduction, subject to the $10,000 SALT cap.
Evaluate Stock Sales or Portfolio Rebalancing
Have you sold stocks or rebalanced a taxable investment account this year? Capital gains can impact your tax bill significantly. Don’t wait until year-end to calculate taxable gains and consider harvesting losses to offset them. This is particularly relevant for inherited investment accounts.
Address Inheritances
If you’ve received an inheritance, the bequest itself is usually tax-free, but subsequent gains from sales are taxable. If you’ve inherited an IRA, annuity, or retirement plan, understand the rules for withdrawals—they vary and can have a significant tax impact. For Roth IRAs, distributions are income tax-free over your life expectancy.
Review Home Transactions
Bought, sold, or refinanced a home this year? The sale of a primary residence may be income tax-free up to $500,000 for a married couple, but eligibility is key. If you refinanced, you may be able to amortize points, or if you paid off a mortgage with deductible points, claim the remaining deduction this year.
Plan Charitable Contributions Strategically
Before donating, consult your CPA to maximize benefits. Options like donating appreciated securities or directing required minimum distributions (RMDs) to charities can reduce your taxable income. Just note the annual RMD-to-charity maximum is $100,000.
Special Considerations for Life Changes
Marriage, divorce, or widowhood can all affect your tax situation. For newlyweds, review how joint filing may impact tax rates. If you're divorced, note that alimony payments are no longer tax-deductible or taxable income for the recipient. Widows can still file jointly for the year of their spouse's passing but may need to adjust tax planning for future years.
Tax Tips for Parents and Recent Grads
Parents of college students may qualify for the American Opportunity Tax Credit, worth up to $2,500 per eligible student. Recent graduates or mid-year workers can benefit from part-year tax withholding adjustments, leaving more in their paychecks.
Manage Tax Brackets in Retirement
Strategically navigating your tax bracket is essential for retirees. You may want to withdraw funds from retirement accounts or convert pre-tax dollars to Roth dollars at lower tax rates. Discuss options like life insurance loans, home equity lines, or deferring Social Security benefits with your CPA to optimize your financial position.
Understand the Impact of Recent Tax Laws
Tax reforms like the Tax Cuts and Jobs Act and the SECURE Act have introduced significant changes, from doubling the standard deduction to reshaping retirement rules. These changes require ongoing attention to ensure you maximize available deductions and credits.
Stay Vigilant, Plan Ahead
Tax laws are complex and evolving, but proactive planning can help you take advantage of available opportunities. Schedule a meeting with your CPA to align your strategy before year-end. Smart planning today can lead to significant savings tomorrow.
Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. WestPac Wealth Partners LLC is not an affiliate or subsidiary of PAS or Guardian. Insurance products offered through WestPac Wealth Partners and Insurance Services, LLC, a DBA of WestPac Wealth Partners, LLC. Not practicing CPA for Guardian or its subsidiaries or affiliates. CA Insurance License #4046027 | Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. | 7439666.1 Exp. 12/26