Tax Newsletter - November 2019 No Images? Click here November 2019 Tax NewsletterYear-end Financial PlanningYes, “Good-bye October and Hello November”! Weather is cooling down (in most parts), the holidays are approaching and the end-of-the-year events! Before we know it, it will be tax filing season again. However, before the year ends, it is time to review your finances before the end of the calendar year. It is necessary to act now since most decisions must be made before year-end and not in January. Also, looking at your situation now could avoid any tax penalties from the government. Here are some things to consider before December 31: 1. Check Your Tax Withholding Be careful if you have W-2 income and your withholdings may not be enough since it could trigger a penalty for under-payment tax, or just having a tax bill. Perhaps, you want a tax refund or to “break-even”? After the creation of the Tax Cuts and Jobs Act of 2017 (TCJA), taxpayers were caught off guard last tax season when they faced a tax bill, and some with penalties. The Internal Revenue Service (IRS) has developed a tool to help taxpayers get prepared and expect the expected! The IRS withholding calculator will assist the taxpayer to recalculate their withholdings outlook to determine if they will owe additional tax by April 15. The IRS advices for taxpayers to utilize this tool before the end of year to decide if their payroll withholdings should be changed. Reminder, most company payroll departments have a deadline on when the changes can be submitted and it is usually in early December, if not sooner. This tool can also assist business owners to check the overall payroll of their employees to ensure enough taxes have been withheld. Small business owners making quarterly tax payments can also utilize the IRS withholding calculator to estimate their tax liability for the year and make their final quarterly payment by the January 15, 2020 deadline. In order to avoid an underpayment penalty, taxpayers are allowed to make quarterly payments of at least 110% of last year's tax liability (if their adjusted gross income is over $150,000). 2. Refinancing a Mortgage or Student Loans The Federal Reserve Bank have initialized several interest rates cut this year, and with the uncertainty of the trade wars, perhaps it would be wise to refinance a mortgage or student loan. If this thought has entered your mind, now would be the time to act. However, before taking this step with a lender, consider your situation: 1) Mortgages: cogitate these concepts: i. You had your fixed mortgage loan for several years: possibly do not refinance since you will endure closing costs and your interest expense has already been decreasing along with the principal. ii. An adjustable rate mortgage because you considered short-term of owning the current home, but goals have changed. Refinancing to a fixed 15 to 30-year mortgage loan could be wiser. iii. Owned the mortgage loan for 10-years? Consider the pros and cons of an adjustable rate mortgage if you are refinancing, especially if you plan to sell the property before obtaining a variable interest rate. 2) Student loans i. Graduates with significant student loans will be aided by refinancing to lower interest loans. ii. A strong credit score with an attractive income could allow a much-needed decrease on the interest rate. iii. Refinancing could lower the timespan of repayment of the loans. iv. A refinance from federal loans to private lenders can bring about the loss of prior benefits however. These include: (1) Loan deferment, (2) Forbearance and (3) Qualifying for loan forgiveness Have several student loans? Refinance the high interest ones to condense the payback requirements. 3. Review the 401(k) Most taxpayer start a 401(k) at their place of employment and basically forget about it. However, most financial advisors recommend checking it at least once a year. Review before December since most companies have a deadline for changes by then. Ensure that your annual contribution limit is reaching the maximum and increase it while you are able by the end of the year. It can also bring a tax savings during the tax season. In 2019, the maximum is $19,000 per year though investors age 50 and older have an additional $6,000 catch-up contribution. Once the 2020 IRS contributions have been announced, taxpayers should update their contribution strategy for next year. The 401(k) investment options will change periodically without much notice. Review the fund options to ensure the asset allocation is within your goals, otherwise it is time to make changes with the account. Performance behavior of funds can change over the year, which would require some changes on the taxpayer’s part. 4. Charitable Contributions Due to the changes for itemizing deductions by the TCJA, fewer taxpayers are considering charitable donations each year. The standard deduction increased so itemizing is not usually attractive. However, consider increasing the contributions to favorite charities every other year to possibly obtain some tax savings in deductions especially if the capped total of $10,000 can be reached on state, local and property taxes each year. Considering the changes to itemized deductions with TCJA, it could be beneficial to consider which charitable philanthropic strategies offer the best tax benefits. Other planned giving strategies, including donating highly appreciated securities and gifting a required minimum distribution, could be advantageous over cash gifts. 5. 529 Plan Distributions Review the distributions of a 529 Plan to avoid a mistake and getting stuck with a tax bill. With most colleges ending their semesters in December, and starting a new one in January, it would be wise to review when the 529 Plan distribution should occur. By taking a distribution in December, it could nullify the tax advantage of the Plan if the tuition is due in January. Not only would the distribution be considered as non-qualified and taxed, but a 10% penalty could occur is the distributions exceed the tuition payments for the calendar year. A possible meeting with the financial aid department of the school should provide additional guidance. 6. Flexible spending accounts: use it or you lose it Review the flexible spending account (FSA) at the place of employment to determine if the remaining balance at the end of year is forfeited or can be carried forward. The human resources department managing the FSA of each company should provide additional guidance as well as reviewing the documentation of the plan. It is always chaotic at the end of the year with holiday planning, gift buying, end-of-semester schools so plan ahead. It is best not to procrastinate to December and plan the necessary moves and decisions in November. Additional financial planning suggestions for year-end: United States: 3 tax-planning hacks to make before the end of the year
Remaining deadlines for 2019November 14 - last day to e-file your tax return for this year until late January. IRS shuts down the e-filing until 2020.International Tax News LinksUnited States: New IRS Procedures For Expats To Come Into Compliance With US Tax & Filing Obligations United States: Sallie Mae launches credit cards aimed at student loan borrowers United States: How to prevent student loans skyrocketing United States:Tracking the Economic Impact of Tariffs United States: The Home Mortgage Interest DeductionUnited States: Important Tax And Estate Planning Update United States: IRS Issues New Guidance And Proposed Form 1040 Question Regarding Virtual Currency United States: Considerations For Californians Looking To Move Out Of State United States: The State Of State Estate Taxes
"Do I have to file?"Wondering if you are required to file because your income is too low? There are changes for 2018 tax year so you could possibly do not have to file taxes to Uncle Sam this year. Click here for thresholds from 2014 to 2018.
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