year end tax planning checklist

Year-End Tax Planning Checklist (2019) – Individual Filers

With the end of the year right around the corner, now is a great time to sit down and review your tax picture. Many strategies, such as maxing out your pre-tax 401(k) contributions or selling taxable loser investments, must be done by December 31 to take advantage of them. While tax planning is essential to do every year, this year rings especially true with the Tax Cuts and Jobs Act of 2017 (TCJA) in effect. This substantial piece of legislation was the most significant overhaul of the U.S. tax code in the past 30 years, and it affected nearly every taxpayer. Most taxpayers ultimately benefited from the reform, but the drastic changes mean strategies you used in prior years may be different or no longer exist. This year-end tax-planning checklist will cover those notable changes and provide some year-end strategies you can take advantage of today to help improve your tax picture for the year.    

Year-End Tax Planning Checklist: Key Changes

The TCJA made a variety of significant changes across the board, but we only highlight the most notable below in this year-end tax planning checklist.

Standard Deduction

The TCJA dramatically increased the standard deduction from $6,500 to $12,000 for individual filers, and from $13,000 to $24,000 for married filing jointly. For heads of household, the TCJA bumped the deduction up from $9,550 to $18,000.

Itemized Deductions

The TCJA eliminated or restricted many itemized deductions available under previous tax laws. The goal was to simplify the filing process and reduce the number of taxpayers who itemize deductions. Some of the more significant changes for itemizing taxpayers include:

  • State and local taxes (SALT). State and local real estate, personal property, and either income or sales taxes are still deductible, but the TCJA capped the total itemized deduction at $10,000.
  • Mortgage loan interest. For mortgage loans taken out after December 15, 2017, the TCJA allows itemizing homeowners to deduct mortgage interest paid on up to $750,000 worth of principal, on either their first or second residence. This limit is down from the previous $1 million cap.
  • Home equity loan interest. Home equity interest is no longer deductible unless the debt is used to buy, build, or substantially improve the taxpayer’s home secured to the loan. Before the TCJA, home equity loan interest was deductible for loans up to $100,000.
  • Charitable contributions. The TCJA raised the limit for charitable donations from 50 percent to 60 percent of adjusted gross income (AGI). (More details in the charity strategy below).
  • Medical expenses. Unreimbursed medical costs that exceed 10 percent of adjusted gross income are deductible. Pre-TCJA was 7.5 percent of AGI.
  • Eliminated itemized deductions. The TCJA eliminated deductions for unreimbursed employee expenses, tax preparation fees, other miscellaneous deductions, and theft and personal casualty losses (save for certain casualty losses in federally declared disaster areas).
  • Limitation on itemized deductions. The TCJA eliminated the “Pease” limitation on itemized deductions. Before the TCJA, taxpayers could reduce their itemized deductions by 3 percent of every dollar of taxable income above certain thresholds. Now, the total reduction may not exceed 80 percent of the total value of itemized deductions.

Alternative Minimum Tax (AMT)

In case you are unfamiliar with the Alternative Minimum Tax (AMT), it’s original intention was to prevent perceived abuses by the very rich trying to avoid taxes. In essence, the AMT requires some taxpayers to calculate their tax liability twice—once under the regular income tax rules and once again under the AMT rules. Whichever amount is higher is the amount they have to pay. Before the TCJA, the AMT rules affected nearly 5 million filers, according to the Tax Policy Center. However, the TCJA increased the AMT exemption amount such that it eliminated the AMT tax for most taxpayers.

Family Benefits (Personal Exemptions, Child Credit)

The TCJA repealed personal and dependent exemptions. For the personal exemptions, the TCJA increased the standard deduction as discussed above, and for dependent exemptions, the TCJA expanded the child tax credit (CTC) from $1,000 to $2,000. 

Tax Forms

Many of the most common tax forms (e.g., Form 1040), were overhauled and dramatically simplified to make the filing process more manageable and less cumbersome.

Year-End Tax Planning Checklist: Strategies

Defer Your Income

If you are an employee, you may be able to defer a year-end bonus and count it towards next year’s income, providing this is standard practice for your company. With your taxable investment accounts, you can also defer your income by taking capital gains in 2020 instead of 2019 (by waiting to sell). If you are retired and taking distributions from your tax-deferred retirement accounts, you can defer withdrawals until 2020. 

Deferring retirement income can make sense in several different situations. For example, if you retired halfway through this year, your 2019 taxable income may be higher than your 2020 taxable income. You may also be able to draw a significant portion of your income from Roth or other tax-free assets, generating a significantly smaller tax burden in 2020 than in 2019. As a result, you could take your tax-deferred distributions starting 2020. Work with your CPA and financial planner to determine the best strategy for your situation since everyone’s situation is unique.

Accelerate Your Deductions

Just as deferring income to next year might make sense for you, you may also want to reduce your tax bill by accelerating your deductions this year. Take some time to figure out if your qualifying expenses exceed the standard deduction or not. If they do exceed the standard deduction, you should maximize your deductions and itemize. However, if you’re right on the cusp of them not exceeding the standard, you should focus on bunching your deductions. 

Bunching deductions is where you time your qualifying expenses to produce lean and fat years. In one year, you cram as many deductible expenses in as possible with the goal of surpassing the standard-deduction amount and claiming a larger deduction. In the alternating years, you reduce these expenses to hold them below the standard deduction amount since you can take the standard deduction no matter what. In those lean years, year-end tax planning can focus on pushing as many deductible expenses as possible into the following year. Deductions you can accelerate into the current year include charitable contributions, an estimated state income tax bill due January 15, a property tax bill due early next year, or a doctor’s or hospital bill. 

Watch Out for the Alternative Minimum Tax

Accelerating deductions, as discussed above, can be dangerous if you are already in the alternative minimum tax or if you accidentally trigger it. Certain expenses that are deductible under the regular rules, such as state and local income taxes and property taxes, for example, are not deductible under the AMT. Hence, if you expect to be subject to the AMT in 2019 and would otherwise claim state, local income taxes, and property taxes as deductions, you may want to hold off on paying the installments that are due in January 2020 in December 2019.

Donate to Charity

Donating to charity is one of the easiest ways to bunch your itemized deductions since you have full control over the timing. You can pull future year charitable giving into the current year and pool contributions into a donor-advised fund that will allow you to take a deduction for the current year while also maintaining control over the placement and distribution of future charitable gifts.  

You can also supercharge the tax benefits of charitable contributions by donating appreciated stock or property instead of cash. If you’ve held the asset longer than one year, you can deduct the asset’s market value on the date of the gift and also avoid paying capital gains tax on the appreciation of the asset. You’ll need receipts as evidence of the donation, regardless of the dollar amount, and there are limits on how much you can deduct. 

The TCJA caps charitable contribution deductions at 50 percent of adjusted gross income (AGI) for the following:

      • All public charities
      • Private operating foundations
      • Certain private foundations that distribute contributions received to public charities and private operating foundations within 2-½ months following the year of receipt
      • Certain private foundations that pool contributions received into a common fund and pay the income and corpus to public charities

For all private foundations outside of those previously mentioned, the TCJA caps charitable contribution deductions to 30 percent of AGI. See the IRS Charitable Contribution Deductions rules page for further details.

Tax-loss Harvesting

If you have investment holdings in taxable accounts that have declined in value this year, you can realize, or “harvest” the losses to offset taxes on both gains and income. The sold security is typically then replaced by a similar one, so you don’t lose your optimal asset allocation and expected returns. Tax-loss harvesting is a very standard year-end tax planning strategy that can also help boost your overall returns due to the resulting tax savings. 

However, tax-loss harvesting is not without its limitations. For one, you can’t deduct more than $3,000 of realized losses against your taxable income, or $1,500 each if married filing separately. You can carry forward additional losses into future tax years, but the deduction limitations still apply. 

Second, IRS regulations do not allow you to buy an asset and sell it solely to pay fewer taxes. This regulation is known as the “wash-sale rule,” which disallows realizing losses if purchasing the same or a substantially identical asset within a 30-day window. For example, you can’t sell depreciated XYZ stock to realize a loss for tax purposes only to turn around and repurchase it two days later. 

Third, every time you realize tax losses, you are lowering your tax basis (the purchase price after commissions or other expenses versus the current market value). Doing so makes tax-loss harvesting harder to do the longer the portfolio grows as you are more likely to see a net gain over long periods of time than a net loss. For most investors, it is generally more advantageous to utilize this tax benefit upfront.

Lastly, there may be trading or other administrative costs associated with tax-loss harvesting transactions. As a result, a general rule of thumb to use is to only harvest losses if the tax benefit outweighs the administrative costs. 

Max Out Pre-tax Retirement Contributions

Pre-tax retirement contributions are the easiest way to reduce your taxable income. Contributions made to pre-tax accounts – such as employer-sponsored 401(k) plans, 403(b) plans, and Traditional IRAs –  are made with income that has not been subject to payroll or income taxes. Pre-tax contributions grow tax-deferred, so they are subject to ordinary income tax upon distribution in retirement. For 2019, 401(k)’s and 403(b)’s offer the highest contribution limits at $19,000 if you are younger than age 50, $25,000 if older. 

If you are under the modified adjusted gross income (MAGI) limits for 2019 (phased out between $64,000 and $74,000), you can also make fully tax-deductible contributions to a traditional IRA (limited to $6,000 for 2019 if under age 50 or $7,000 if older). Employer-sponsored retirement plans have December 31 deadlines for contributions while IRA’s have until the April 15th tax filing deadline. 

Avoid the Kiddie Tax

The kiddie tax refers to a tax imposed on individuals under the age of 17 who have investment and unearned income higher than an annually determined threshold. The kiddie tax was initially created in 1986 to prevent parents from avoiding taxes by transferring large gifts of stock to their kids in lower tax brackets. For 2019, the tax applies to a child’s investment income above $2,200 and at the same rates as trusts and estates (generally higher than the marginal tax bracket rates). 

If your child is also a full-time student providing less than half of their support, the kiddie tax applies until the year your child turns age 24. As a result, be careful if you plan to give a child stock to sell to pay for college expenses. If the gain realized exceeds the unearned income limit of $2,200, you could end up paying a higher tax rate on those proceeds.

Review your Flexible Spending Accounts (FSA’s)

Flexible Spending Accounts (FSA’s) are a type of fringe benefit that your employer may offer to help you pay for child care or medical expenses with pre-tax dollars. At the beginning of each year, you have to decide how much to contribute to the plan. Any remaining funds exceeding $500 (2019) that are not used by the end of the year are then forfeited going into the following year. This rule is colloquially known as the “use it or lose it” rule. The 2020 FSA contribution limit is $2,750.  

If you currently use an FSA or plan to take advantage of one, use the end of the year as an opportunity to analyze your out-of-pocket healthcare costs for the year and use that number to help you estimate your out-of-pocket costs for next year. Ideally, you should only contribute what you know you’ll spend, so you don’t “lose it” at the end of the year. 

Alternatively, if you have access to a Health Savings Account (HSA), you might consider using that instead. Like FSA’s, you contribute pre-tax (reduces taxable income) dollars to HSA’s, the funds grow tax-free and can be withdrawn tax-free for qualifying medical expenses. The 2020 HSA contribution limits are higher than FSA’s at $3,550 for individuals or $7,100 for families. Also, HSA contributions have no “use it or lose it” rules, and once you reach age 65, you can withdraw funds penalty-free and only pay ordinary income tax on the distribution. Unlike FSA’s, HSA’s make an excellent additional tax-advantaged retirement savings vehicle.

Year-End Tax Planning Checklist: The Bottom Line

The end of the year provides an excellent opportunity to take advantage of any of the strategies that match your current financial picture that are covered above in this year-end tax planning checklist. This list is by no means conclusive in its entirety, but it does include some of the more notable changes made under the TCJA, as well as some widely applicable strategies to implement under the new rules. However, due to the inherent complexities of tax planning, make sure you work with your tax professional and financial planner to avoid mistakes and ensure no stone is left unturned. 

Schedule a free consultation with us today if you have questions on this year-end tax planning checklist or would like help with your current situation.


Forefront Wealth Partners is an independent financial advisory firm that provides creative problem solving to our clients. In a world where change is accelerating and the future uncertain, we provide simplicity and confidence concerning financial, tax, and legal strategies. Our process involves a deep relationship, focusing on meaningful outcomes and dynamic planning.

The information given herein is taken from sources that IFP Advisors, LLC, dba Independent Financial Partners (IFP), IFP Securities LLC, dba Independent Financial Partners (IFP), and its advisors believe to be reliable, but it is not guaranteed by us as to accuracy or completeness.

This is for informational purposes only and in no event should be construed as an offer to sell or solicitation of an offer to buy any securities or products. Please consult your tax and/or legal advisor before implementing any tax and/or legal related strategies mentioned in this publication as IFP does not provide tax and/or legal advice. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. This report may not be reproduced, distributed, or published by any person for any purpose without IFP’s express prior written consent.