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Helpful Tax Tips for 2019

There are a number of tax saving ideas that can be of benefit, some require action before year end. Here are a variety of options that may affect your tax outcome.

As the year draws to a close, we have pulled together a number of tax tips that may be beneficial, some of which need to be acted on before year end to be useful for 2019.  Here at HIPPO Tax Services, we welcome your questions on how these tips can benefit you and your tax situation.

Avoiding Underpayment Penalties Strategy – Most high-income taxpayers and those who might end up with higher-than-normal income because they are likely to receive extraordinary taxable income should consider paying 110% of their prior year’s tax to meet the safe harbor for avoiding an underpayment penalty. And then, no matter how much they end up owing for the year, they will not need to pay up until the April due date. However, this exception requires the prepayments to be made evenly and to be paid in a timely manner by quarter; underpayments generally can’t be made up later and still qualify for the safe harbor. But, since withholding is treated as being paid evenly throughout the year (unless the taxpayer elects actual withholding amounts), the estimated tax shortfall of the even-payments-by-quarter requirement can be made up by having extra withholding at the end of the year from payroll or RMD’s. 

Spousal IRA Strategy – If one spouse works and the other does not, tax law allows the non-working spouse to base his or her contribution to an IRA on the working spouse’s income. This tax benefit is frequently overlooked when spouses have been working and basing their individual contributions on their own income for years and then one of the spouses retires. Even if the working spouse has a pension plan at work and his or her income precludes making an IRA contribution, the non-working retired spouse can still make a contribution based on the working spouse’s income. However, be careful since traditional IRA contributions, both deductible and non-deductible, are not allowed in the year when an individual turns 70½ or any subsequent years. This restriction does not apply to Roth IRA contributions. 

Qualified Charitable Distributions – With the tax reform’s substantial increase in the standard deduction, many taxpayers no longer itemize their deductions and thus get no tax benefit from making charitable contributions. However, individuals age 70½ or older—who must withdraw annual required minimum distributions (RMDs) from their IRAs—can annually transfer up to $100,000 from their IRAs to qualified charities. In doing so, the IRA distribution is excluded from income, the distribution counts toward the taxpayer’s RMD for the year, and the distribution does NOT count as a charitable contribution deduction. 

At first glance, this may not appear to provide a tax benefit. However, by excluding the distribution, a taxpayer lowers his or her adjusted gross income (AGI), which helps for other tax breaks that are pegged at AGI levels, such as medical expenses when itemizing deductions, passive losses, and taxable Social Security income. In addition, non-itemizers essentially receive the benefit of a charitable contribution to offset the IRA distribution. 

Medical Expenses  Self-employed taxpayers can deduct health insurance premiums they pay for themselves and their dependents above the line, which is helpful when taking the standard deduction or when the medical expenses do not exceed the 10% of AGI threshold for itemized deductions. Also, don’t overlook including long-term care and Medicare B and D premiums.  

Convert Traditional IRA’s to Roth IRA’s  While income limits preclude many individuals from investing in Roth IRA’s there is no income limitation when it comes to converting a traditional account to a Roth account. Roth IRA’s come with some advantages that include tax free withdrawals and no required minimum distributions (assuming all rules have been followed). If your income is lower for the current year, choosing to make those conversions, and pay the tax now could save you in the future.

Solar Credit  A federal credit for the purchase and installation costs of a residential solar system is fading away. After being 30% of the cost for several years through 2019, the credit amount will drop to 26% in 2020 and then 22% in 2021, the final year of the credit.

Please call Hippo Tax Services to discuss if any of these items may be helpful to you and have an impact on your tax situation and ask for Alexis Meeks, CPA, Tax Manager.

Please check with your Curran Wealth relationship manager,
or contact Curran Wealth Management if you have any questions.
 518.391.4200 •
 info@curranllc.com

The material contained in this article is for educational and informational purposes only.  The information herein is considered to be obtained from reference sources deemed reliable, but no representation or warranty is made as to its accuracy or completeness.  This article is not, and should not be regarded as “investment advice” or construed as a “recommendation” or an offer to buy or sell a security.  The information contained in this article may not apply to your personal circumstances.  Before making any decision or taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular situation.  Information on taxes is based on the tax laws existing at the time of publication.  Tax laws are subject to continual change.  In addition, tax laws vary by state.  This article is not, and should not be regarded as tax or legal advice.  We cannot ensure tax consequences of any transaction.  If you would like a detailed analysis of your tax situation, with specific tax recommendations, you can discuss the possibility of pursuing a formal relationship with Hippo Tax Services, LLC.