Check Your Withholding
The 2017 tax overhaul lowered tax rates across the board, but it also scrapped some popular tax breaks. As a result, some taxpayers who were accustomed to receiving a refund ended up owing the IRS when they filed their 2018 tax return.
If you were part of that band of disgruntled taxpayers, you may be able to take steps between now and year-end to avoid another April surprise. Use IRS's Tax Withholding Estimator and Oregon Withholding Calculator as soon as you can to determine where you should file a new W-4 with your employer and increase the amount of tax withheld from your paycheck before the end of the year. You'll need your most recent pay stub and a copy of your 2018 tax return to help estimate your 2019 income.
Pay Bills Now (Including Some for 2020)
Unless your finances have changed significantly, you probably have a pretty good idea whether you'll itemize or claim the standard deduction when you file your 2019 tax return. If you plan to itemize—or you're close to the threshold—now is a good time to prepay deductible expenses, such as mortgage payments and state taxes due in January.
Review your medical bills. If you have enough unreimbursed medical expenses, you may be able to deduct them. In 2019, you can only deduct unreimbursed medical expenses that exceed 10% of your adjusted gross income (in 2018, the threshold was 7.5%). That puts this tax break out of reach for most taxpayers, but if you had extraordinarily high medical expenses this year—due to a major illness, for example—you may qualify.
And there's still time to schedule appointments and procedures that will increase the amount of your deductible expenses. The list of eligible expenses includes dental and vision care, which may not be covered by your insurance.
Prepay tuition. If you're the parent (or grandparent) of a college student, you may be able to lower your 2019 tax bill by prepaying the first quarter tuition bill—and you don't need to itemize to claim this tax break. The American Opportunity Tax Credit, which you can take for students who are in their first four years of undergraduate study, is worth up to $2,500 for each qualifying student. Married couples filing jointly with modified adjusted joint income of up to $160,000 can claim the full credit; those with MAGI of up to $180,000 can claim a partial amount.
Likewise, if you're planning to take a class next year to boost your own career, consider prepaying the January bill before December 31 so you can claim the Lifetime Learning Credit on your 2019 tax return. The credit is worth up to 20% of your out-of-pocket costs for tuition, fees and books, up to a maximum of $2,000. It's not limited to undergraduate expenses, and you don't have to be a full-time student. Married couples filing jointly with MAGI of up to $116,000 can claim the full credit; those with MAGI of up to $136,000 can claim a partial credit.
Look into an ABLE account. If someone in your family has special needs, you can contribute up to $15,000 this year to an ABLE account, which allows people with qualifying disabilities to save money without jeopardizing government benefits (ABLE account beneficiaries can contribute more to their own account). You don't have to invest in your own state's plan, but if you are a resident of one of the states that do offer a tax break for ABLE accounts, you can deduct your contribution. For more information, go to the ABLE National Resource Center's website.
Reap the Tax Harvest
The tax code allows you to sell investments that have fallen below your purchase price and use the resulting loss to offset capital gains in taxable accounts. That's a compelling reason to consider jettisoning your losing positions. Investments that you've held for a year or less are taxed as ordinary income, but investments you've held longer are taxed at the long-term capital gains rate, which ranges from 0% to 23.8%.
After matching short-term losses against short-term gains, and long-term losses against long-term gains, any excess losses can be used to offset the opposite kind of gain. If you still wind up with an overall net capital loss, you can use up to $3,000 of that loss to offset ordinary income and roll the rest over to the following year. Note that once you sell an asset at a loss, you must wait 30 days before reinvesting in it or buying a substantially identical investment.
Single investors with income less than $39,375 ($78,750 for joint filers) pay no capital gains tax on investments held for more than a year. If that's the case, it may make sense to sell winning investments tax-free and reinvest (no need to wait 30 days), effectively resetting the odometer on future gains.
Watch for Capital Gain Distributions
Mutual funds are required to pay out to their shareholders any gains realized from the sale of stocks or bonds during the year. If you own the fund in a taxable account, you must pay taxes on these distributions when you file your tax return, even if you reinvest them.
If you get hit with a distribution, review your portfolio to see if you have any mutual funds, stocks or bonds that have declined in value since you purchased them. Selling them before year-end will provide losses to offset your gains. Mutual funds typically publish an estimate of their capital gains distributions in November or December, along with the date of the distribution. Estimates are on a per-share basis, so if you figure out how many shares you have, you can gauge the size of your distribution.
Interested in buying a fund before the end of the year? Check its website first. If the fund plans to make a capital gains distribution, postpone your purchase until after the distribution date. Otherwise, you'll have to pay taxes on gains racked up before you got on board.
Max Out Your Pre-Tax Retirement Savings
As the year comes to a close, you may be able to squeeze a little more money from each paycheck for your retirement savings. You can contribute up to $19,000 to a 401(k), 403(b) or federal Thrift Savings Plan in 2019, plus $6,000 in catch-up contributions if you're 50 or older.
Pretax contributions will lower your take-home pay and reduce your tax bill. If your employer offers a Roth 401(k), you can make contributions that won't lower your taxable income now but that can be withdrawn tax-free in retirement. If your employer offers both types of plans, you can direct new contributions to the Roth 401(k) rather than the pretax 401(k) at any time.
Contact your 401(k) administrator or your employer's human resources department ASAP to find out how much you're on track to contribute to your 401(k) by the end of the year and to ask about the steps you need to take to boost your contributions. The earlier you make the change, the better: 401(k) contributions are made through payroll deduction. If you're contributing to a traditional or Roth IRA for 2019, you have until April 15, 2020.
If you aren't on track to max out your retirement account for the year, adding money from a year-end bonus can be a great way to boost your contributions without affecting your regular take-home pay. Rules vary, and some plans don't allow participants to contribute their bonus. Also make sure that you don't cross the annual contribution limit. You have until the tax-filing deadline to withdraw any extra contribution and the earnings on it, which will both be taxable. If you don't take it out, the excess contribution will be taxable now and you'll have to pay taxes on it again when you finally withdraw the money.
401(k) and 403(b) retirement plans must be establishes by December 31st 2019. SEP IRA's must be established before your 2019 taxes are filed.
Open a Donor-Advised Fund
Putting your money or other assets, such as stocks or personal property, in a donor-advised fund allows you to deduct the entire contribution in the year you make it and decide later how you want to dole out grants to charities of your choice. You can open a donor-advised fund at financial-services firms such as Fidelity Charitable (minimum investment: $5,000) or Schwab Charitable ($5,000 minimum) or at community foundations. Contributing one lump sum this year may help lift your deductions above the standard deduction amount and allow you to itemize.
Max Out Charitable Donations (and Declutter)
Donating clothes, kitchenware or furniture you no longer need can also boost your deductions while helping a worthy cause. You'll base your deduction on the donated item's "fair market value" (or what it might sell for at a thrift or consignment shop)—you can use online tools such as TurboTax's ItsDeductible tool to estimate this value. You will need a written acknowledgment from the organization if you are claiming a contribution of $250 or more (consider snapping a photo of the donation for your records). For donated items valued at more than $5,000 (art, antiques, etc.), plan on providing a written appraisal.
Transfer IRA Money to Charity
Taxpayers who are 70½ or older can transfer up to $100,000 from a traditional IRA tax-free to charity each year, as long as they transfer the money to the charity directly.
The "qualified charitable distribution" will count as your required minimum distribution without being added to your adjusted gross income, which can be a boon if you were going to take the standard deduction instead of itemizing (you can't deduct charitable transfers). The transfer could also help keep your income below the threshold at which you're subject to the Medicare high-income surcharge as well as hold down the percentage of your Social Security benefits subject to tax. Make a QCD well in advance of New Year's Eve because the money has to be out of the account and the check needs to be cashed by the charity by December 31.
Consider a Roth Conversion
Consider converting some money from a traditional IRA to a Roth IRA this year, up to the top end of your income tax bracket. You'll pay taxes on the conversion (minus any portion that represents nondeductible IRA contributions), but the money will grow tax-free in the Roth after that. Converting your entire traditional IRA balance can bump you up to a higher tax bracket, but you can spread conversions over several years. Be careful about making a large conversion if you're within two years of signing up for Medicare—you'll have to pay extra for Medicare Part B if your adjusted gross income (plus tax-exempt interest income) is more than $85,000 if you're single or $170,000 if you're married filing jointly. Your last tax return on file determines your Medicare premiums, so a 2019 conversion could affect 2021 premiums.
Newly formed Oregon businesses have received a solicitation from OR Certificate Services offering a Certificate of Standing/Existence for $77.25. Many businesses do not need this certificate. Those that do may obtain one directly from the Secretary of State for $10.
This solicitation may appear to be from a government agency, but its not. A copy of the Solicitation can be viewed here.
If you were misled by this solicitation, you may request a refund. To obtain a refund, call OR Certificate Services at 1-855-210-6990 or 1-855-755-3357 between 9 am & 5 pm EST.
Official correspondence from the Oregon Secretary of State Corporation Division always contains the following elements:
To view other types of schemes that spammers and scammers are using, visit the Business Alert page. If you believe you have been a victim of a business scam, please contact the Secretary of State at Corporation.Division@Oregon.gov or 503-986-2200.
To receive a tax deduction for contributions to an Oregon College Savings Plan on your 2019 taxes, contributions will need to be made prior to December 31st, 2019. Starting January 1st, 2020 the Oregon College Savings Plan is moving to a tax credit. If you file an Oregon income tax return, contributions made to your account before the end of 2019 are deductible up to a certain limit. For 2019, the limit individual taxpayers are allowed to deduct is $2,435 or $4,865 if filing jointly. You may also carry forward a balance over the following four years for contributions made before the end of 2019.
Recapture provisions apply. This means that if you withdrew funds for non-qualified expenses from your Oregon College Savings Plan account and you claimed a tax benefit for that year’s contribution, the state of Oregon will recapture any Oregon State income tax benefits that you had accrued on the principal portion of that withdrawal.
Worth noting, any funds that you plan to roll over from another 529 College Savings Plan are considered “new contributions” and will count towards the limit you’re allowed to deduct in a given tax year.
For more information, visit The Oregon College Savings Plan website.
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