Tax Planning Strategies for 2019
By Nate Beck, CPA
We often get asked how we can save our clients’ money, and as most answers to tax-related questions go, it depends. Each situation is different and not every solution will apply to all taxpayers. In this article, we will briefly explain a few different ways you could reduce your tax liability in 2019.
- Consider donating appreciated securities to a donor-advised funds. These appreciated securities will entitle you to a charitable contribution at the fair market value, not your original cost basis. With the increased standard deduction and state and local tax cap, this is a great way to itemize your deductions and receive a direct tax benefit for your charitable contributions. Another advantage of this is that it could position you to claim the new 20% pass-through deduction due to lower taxable income if you are a business owner that may have been previously limited on the 20% deduction.
- An alternative idea to save money on appreciated securities or property is to sell them and invest the capital gains in an Opportunity Zone (“OZ”). For example, let’s say you have a $100,000 capital gain from the sale of securities. You decide to invest the $100,000 into an OZ investment within 180 days of the stock sale. This entitles you to defer the stock gain until the earlier of December 31, 2026 or the date the OZ investment is sold. There is also the potential to permanently exclude 10%, 15%, or 100% of the appreciation on the OZ investment if it’s held for a certain time-period.
- There are a couple of Iowa specific ways to save money as well.
- One of the methods is the 529 plan. A notable change to the 529 plans is that $10,000 can be withdrawn for private elementary and high school tuition annually.
- Another method is the first-time homebuyer savings account (“FTHSA”). Most people are familiar with 529 plans, but may not have seen the FTHSA. This is a special bank account that is used to purchase a taxpayer’s “first” home. The FTHSA is similar to the 529 plan in that people can make tax-deductible contributions for anyone, including themselves. The deduction is $2,050 for 2019 ($4,100 for married couples) and can be made up to 10 years in a row. If there is money in the account 10 years after it was opened, the account is no longer considered a FTHSA subjecting it to income recapture. So, if you have children or grandchildren that you know will be purchasing a home in Iowa within the next 10 years, consider talking to your banker about setting up an account.
If you have any questions or thoughts about reducing your tax liability, feel free to let us know as we would be happy to review your situation and discuss different planning options that best fit your goals.
Nate Beck, CPA | Principal