Tax Strategies to Save Money on Taxes For 2019

Due to the recent tax law changes there are some tax savings and deferral strategies that you should be aware of for 2019.  As we go into the second half of the year here are some ideas to help you lower and defer taxes:

 1. Participate or Increase Your Employer-Sponsored Plan Contribution

·        In many employer-sponsored retirement plans, your contributions are pre-tax and reduce your taxable income

·        You receive long-term tax benefits since principal and earnings grow tax-deferred until withdrawn

·        You can contribute the maximum to a 401K, 457, or 403B Plan of $19,000 this year.  Those over 50 can contribute an additional $6,000 for a total of $25,000

·        Also, many employers offer a match on your contribution (which is free money to you) so make sure you put in enough to receive the maximum company match

2. Contribute to A Traditional IRA

·        If you don’t have an employer sponsored plan available, consider contributing to a Traditional IRA

·        Depending upon your income, you may be able to deduct contributions in addition to an employer sponsored plan contribution

·        Your IRA also provides long-term tax benefits of tax-deferred growth

·        For 2019, individuals may contribute $6,000 ($7,000 if over age 50)

3. Consider the Timing of When You Retire

·        People often receive a large paycheck upon retirement, if they are offered a buyout or paid for unused sick or vacation days

·        It may be advantageous not to retire at the end of a calendar year and have this additional pay be added to your regular pay for the year

·        Rather should retire at the beginning of the year so you don’t pay unnecessary tax on this additional income.  Plus, you have the added benefit of retiring in the spring and summer months!

4. Consider Itemizing Your Taxes

·        Due to the recent tax change more and more people are taking the standard deduction rather than being able to itemize their taxes.  Especially if you live in a state with high property tax or income tax

·        However, you still may be able to itemize if you have such expenses as high medical bills, extensive charitable contributions and investment losses to name a few

·        Make sure you are checking to see if you should take the standard deduction or itemize your taxes

5. Contribute to an HSA (Health Savings Account)

·        Contributions are tax deductible, grow tax deferred, and come out tax free if used for medical expenses

·        Many of these accounts also allow you to invest the money into stock or bond funds in addition to money market funds.  Make sure that your account offers you these options

·        If you withdraw money after age 65 for non-medical expenses the 20% penalty is waived, and you only pay tax on the distribution

·        The account is yours for your life and you spouse can inherit it

6. Use Capital Loss Rules to Your Advantage

·        No one likes losses, but they are part of investing from time to time. Capital losses may be used to offset capital gains if the securities sold were in a taxable account

·        If capital losses exceed gains during the tax year, you may use up to $3,000 of losses to offset earned income and reduce taxable income

·        Losses above $3,000 can be carried forward to offset gains in future years with no expiration date.

7. Know When to Buy and Sell Mutual Funds

·        Mutual funds declare and pay any capital gains at the end year, usually in November and December

·        You can avoid receiving this gain and having to pay tax on it by selling the fund before the capital gain is declared

·        In some cases, selling before the capital gain is declared may save you a significant amount in taxes

·        Additionally, if you are going are to own mutual funds in a taxable account you should always investigate you how much in taxes, you’ll have to pay each year by owning the fund

8. Position Investments in Different Types of Accounts

·        Consider positioning your more tax-efficient investments in taxable accounts and less tax-efficient investments in tax-deferred accounts

·        Meaning, keep your bonds or bond funds in your retirement accounts and your stocks or stock funds in your taxable account

·        Our current tax system charges higher taxes on interest from bonds and CD’s than it does for stock dividends and long-term capital gains

9. Consider Owning ETFs (Exchange Traded Funds) instead of Mutual Funds

·        Due to their tax structure and management style, ETF’s generally generate less capital gains than mutual funds

·        This could significantly lower the taxes you have to pay buy owning these investments each year which will increase your return over time

o   An investment in Exchange Traded Funds (ETF) or Mutual Funds has the potential of losing money and should be considered as part of an overall program not a complete investment program.

o    Before implementing any of these strategies consider consulting with your tax advisor pertaining to your specific situation. This information is not intended to be a substitute for specific individualized tax advice.