THE Tax Cuts and Jobs Act made significant changes to income tax rates and traditional deductions. Let’s look at 10 tips on how those changes affect tax plans for this year ending December 31, 2019. This is the third of a three-part series.
7. Cover health care costs efficiently
Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) permit you to deduct pretax contributions for qualified medical expenses that your insurance doesn’t cover.
HSA doesn’t require you to spend all the money in your account each year.
You can deposit funds into an HSA up to the tax filing due date next year up to the maximum dollar limit and still receive a tax deduction for the current tax year. In other words, you can make your 2019 contribution by April 15, 2020. On the other hand, FSA contributions are elected during open enrollment or when you become an employee of a company.
8. Increase your contributions to your retirement plans
Boost your contributions to your IRA, 401(k), or other retirement plan to reach the maximum contribution amount. This move increases your retirement savings and lower your taxable income. If you’ll be age 50 or older at any time during the calendar year, take advantage of “catch-up” contributions to add an extra $1,000 for an IRA an extra $6,000 for a 401(k) plan.
Remember that you have until Dec. 31, 2019 to contribute to a 401(k) plan and until April 15, 2020 to contribute to an IRA for the 2019 tax year.
9. Convert traditional IRAs into roth accounts… while you can
If Elizabeth Warren wins the next presidency, tax rates as we know will change – for the worse for high bracket taxpayers. The current political climate could make conversions beneficial this year to avoid higher future taxes under a Warren administration. We are not billionaires but I didn’t enjoy paying for ground beef at a grocery while a fellow in front of me checked out steak with food stamps. But this is just one taxman’s personal observation.
Roth conversions used to be restricted if your income was above a certain amount. That restriction is gone. Anybody can now make such conversions. How long these beneficial rules last depends on the next national election.
10. Update your estate plan
The unified federal estate and gift tax exemption for 2019 is a massive $11.4 million ($22.8 million for married couples). Even though these large exemptions may exempt you from federal estate tax, your estate plan may need revisions to reflect existing tax rules.
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Victor Santos Sy graduated Cum Laude from UE with a BBA and from Indiana State University with an MBA. Vic worked with SyCip, Gorres, Velayo (SGV – Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation.
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He retired after 50 years of defending taxpayers audited by the IRS, EDD, BOE and other governmental agencies. He published a book on “How to Avoid or Survive IRS Audits.” Readers may email tax questions to [email protected].