Comprehensive wealth management is about more than just developing a financial plan and putting your assets to work. It should also be about insulating your wealth from unnecessary taxation.
With just three months left in 2019, now is the time to get started on the year-end tax planning process. Keep reading to see a few of the tax-code opportunities we are looking at for 2019, and connect with our team if you’d like to schedule a one-on-one consultation.
The First Step: Capture Opportunities From The 2018 Tax Reform Bill
The details of the 2018 Tax Reform Bill were still coming into focus during last year’s tax season, making it difficult to identify strategic opportunities within the revised tax code. Now that the dust has settled, it’s a good time to re-evaluate three areas of your tax return if you didn’t do so last year.
1) If You Itemize, Check Your Inputs
Mortgage interest, charitable donations, unreimbursed medical expenses (over 10% of your AGI), and state and local taxes (up to $10,000) can all be included within your itemized deduction. If you have itemized in the past, now is a good time to check that your charitable donation level and the utilization of a mortgage for the tax deduction is optimal for the 2019 tax year.
2) If You Run A Small Business, Check The Tax Entity
Many small business owners can now capture a 20% income deduction, provided the business owner’s taxable income is below a certain threshold. Unfortunately, this new deduction comes with a caveat: the 20% deduction does not apply to businesses generating revenue through the professional services of one individual (e.g., doctors, accountants, or lawyers).
If you run a small business that is structured as an LLC or S-Corp, it’s a good time to double-check that your tax entity is still optimal.
3) Review The Structure Of Investment Accounts
As with business entities, we want to ensure that your retirement accounts are set up to minimize your tax burden. For many of our clients, tax-deferred retirement accounts like IRAs or 401(k)s are the best way to do that; however, that’s not always the case.
The 2018 Tax Reform Bill lowered many tax rates through 2025, but after that, those rates are set to return to 2017 levels. We can work with you to determine whether you’re one of the investors who would be better served by a Roth IRA; and if you are, we can help you make the switch now – before many tax rates are scheduled to go back up in 2026.
Don’t Wait Till December To Look At Capital Gains And Estimated Taxes
If you haven’t done so already, now is the time to evaluate your projected capital gains/losses for 2019. By doing so early in the fourth quarter, you will have enough information to make an accurate projection of your year-end totals, and you still have enough time to exit positions strategically over the next few months. The market is often volatile in December, so closing out positions in October and November can help you avoid selling into tumultuous markets.
If you’re a business owner, the start of the fourth quarter is also a good time to check your quarterly estimated tax payments to ensure they match your projected year-end tax liability. The penalties for underpayment can be onerous (20% of the net understated tax amount), so confirming you’re on pace now is a wise move.
Most Important: Get Everyone On The Same Page
Finally, it’s crucial that you check in with your trusted advisors and make sure they’re all on the same page going into the end of the year. Our team can help with this process and ensure that each of your advisors is pulling in the same direction when it comes to filing your 2019 return.
Whether you need help putting together your return or you just need someone to confirm that you’re on the right path, we can help. Connect with RVP to discuss the specifics of your 2019 tax return.
ABOUT THE AUTHOR: Jeff Fosselman, CPA, CFP®, JD
With more than a decade of experience in the industry, Jeff Fosselman is instrumental in delivering financial planning strategies and counsel to high-net-worth individuals. As Senior Wealth Advisor for Relative Value Partners, Jeff provides comprehensive advisory services in estate planning, income tax planning, cash flows, asset allocation, and strategic philanthropy.
Information contained in this article is obtained from a variety of sources which are believed though not guaranteed to be accurate. Past performance does not indicate future performance. This article does not represent a specific investment recommendation.
No client or prospective client should assume that the above information serves as the receipt of, or a substitute for, personalized individual advice from Relative Value Partners, LLC which can only be provided through a formal advisory relationship. Clients of the firm who have specific questions should contact their Relative Value Partners counselor. All other inquiries, including a potential advisory relationship with Relative Value Partners, can be directed here.