5 Tax-Saving Moves For Your 2019 Tax Return
Now that tax time is here, you’re probably starting to load everything into your tax preparation software or send documents to your CPA. There are many tax documents mailed to you or available online, but what about some of the items that are tougher to keep track of? Here are 5 helpful reminders for items to get to your CPA:
- 529 Contributions/Distributions– Other than your year-end statement, you may not receive something specific to send to your accountant that outlines the amount you put into 529 plans during 2019. Make sure to track this information down and pass it along to your accountant to confirm you receive the appropriate deduction on your state income tax return. Also, if your return were to ever be audited, be sure that you can sufficiently prove that all distributions taken from 529 plans during the year were used for qualified education expenses.
- Qualified Charitable Distributions– If you are age 70 ½ or older, you may have made a contribution to a qualified charity directly from your IRA, which is very important information for your CPA to have! Despite telling custodians who to make the check payable to, they do not track if the payee is a registered 501(c)(3) organization. Because of this, your tax form (Form 1099-R) could show that all distributions from your IRA are “taxable” when they potentially should not be. Without a heads up from you, your CPA will not have any way of knowing how much of your IRA distribution should be excluded from taxable income. Fear not, relaying to your CPA the amount of your 2019 IRA distributions that went directly to charity should be sufficient to ensure everything is captured accurately on your tax return.
- Charitable Contributions– If you made gifts of cash, appreciated securities, or other property to qualified charitable organizations during the year, you will likely receive a letter from the organization documenting your gift. Be sure to pass this information along to your CPA, as these donations are not captured on an IRS form.
Also, with a lot of talk around lower tax rates, increased standard deductions, and the doubled child tax credit, you may have thought you were in the clear from a tax liability standpoint. But what if you still owe money with your 2019 tax return? If that’s the case, what can you still do to mitigate the liability? Here are a few of the post-year-end tax planning items that remain available for the 2019 tax year:
- IRA Contribution Deduction– You have until July 15, 2020, to contribute to your IRA for the 2019 tax year. In certain cases, you may qualify for this contribution to be tax-deductible. If you – and your spouse, if married – are not covered by an employer-sponsored retirement plan, you can deduct the full contribution to your traditional IRA no matter how much you earn. However, the maximum you can deduct, per person, is $6,000 for 2019 and individuals 50 and older can put in an additional $1,000 as a “catch up” contribution. If you plan on making an IRA contribution for the 2019 tax year, be sure to confirm with the custodian that the contribution is a “prior year” contribution, otherwise, it may inappropriately be coded as a current year (2020) contribution!
- Health Savings Account (HSA) Contribution Deduction– Similar to the IRA deduction noted above, you have until July 15, 2020, to make a deductible contribution to your Health Savings Account (HSA) for the 2019 tax year. The maximum deduction for the 2019 tax year is $3,500 for a single person and $7,000 for a family. If you are age 55 or older, you are eligible for an additional catch-up contribution of $1,000 (this is a different age than the IRA contribution catch-up age of 50). However, being able to contribute first requires that your health plan be HSA-qualified. Similar to the IRA contribution noted above, be sure to confirm with your HSA custodian that any contributions you make post-year-end that you want on your 2019 tax return are coded as a “prior year” contribution.
Hopefully, the above information helps you to send the appropriate documentation to your CPA and provides you with a few options to reduce your liability for the 2019 tax year.
Matt is a wealth manager at BDF. He sits on BDF's Financial Planning Committee and leads many of the firm's tax-related initiatives. Matt has a passion for building strong relationships with his clients and helping them make sound decisions. He also holds the Certified Exit Planning Advisor designation which helps him advise business owners on how to exit their business and prepare for retirement.