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10 Tax Tips To Start 2019 With The Right Foot

Accounting Today Posted an article shows us tax strategies to start 2019. The American Institute of CPA’s has both a PFP Executive Committee and a Personal Finance Specialist (PFS) Credential Committee, whose members have shared a generous number of strategies and guidelines to get 2019 off to a great financial start, because the earlier taxpayers give attention to their personal finances, the greater the benefits they will enjoy.

A New Year Means a Fresh Look at Finances

The beginning of a new year presents an opportunity to, “ …begin the year with a fresh plan”, says PFP Executive Committee member Lisa Featherngill, CPA/PFS.  This is important because updating your balance sheet creates a clear starting point from which you can then set your financial goals, such as reducing debt, increasing investments, or a similar financial aim, for the year.  Lisa goes on to say, “It’s that simple, but you have to know where you are now in order to determine where you want to be.”

2018 Hindsight Aligns 2019 Action

Lisa’s fellow member on the PFP Executive Committee, Michael Landsberg, also a CPA/PFS, states that the planning for the year ahead is best done with clear knowledge of what a client spent the year before.  He says January is the ideal window period for taking stock of prior-year expenses and, from that information, formulating an aligned budget for the current year.  His advice is to remove all the expenses that occurred once off, such as emergency room visits or car repairs, and then map out the 2019 spending, making allowance for any unforeseen expenses that may occur during the year ahead.

Take Stock of Automatic Payment Subscriptions and Renewals

The guidance from another key PFP Executive Committee member, Brooke Salvini, (CPA/PFS), is that automatic payments and subscriptions set up in previous years should be reviewed at the start of every new year.  These would include gym memberships, entertainment streaming services or magazine subscriptions.  Budgets, lifestyles and financial priorities change, and all these items need to be looked at closely to ensure they don’t place an unnecessary drain on finances. Brooke Salvini says finding and patching those leaks should “be part of your general new year clean-up, which feels so good and refreshing!”

Form W-4 – Update for Withholding

In spite of an aggressive campaign by the Internal Revenue Service to inform the public of their need to update their W-4 Forms regarding withholding, there is still a significant number of taxpayers that have not done so.  Julie Welch’s (CPA/PFS and PFP Executive Committee member) advice is that taxpayers should be checking their withholding to assess whether more or less needs to be withheld in 2019, in line with 2018’s major changes to individual taxes and the substantially revised IRS withholding tables introduced at the start of 2018.  The Form W-4, and its related instructions, is a beneficial tool to estimate how much withholding is needed.  The IRS has also provided a withholding calculator (find at: https://www.irs.gov/payments/tax-withholding) or you can get financial guidance from your CPA or advisor.

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2018 taxes – Calculate As Early As Possible

According to David Stolz, an esteemed member of the PFS Credential Committee and a CPA/PFS, the Tax Cuts and Jobs Act does not only have an impact on withholding.  Taxpayers will also be affected by other important ramifications.  It is most likely that the new tax bill has made significant changes to tax opportunities you might consider, and David’s advice is to ensure that you have a keen understanding of what those opportunities are well before April.  The types of changes you may need to make in the light of these tax amendments could be anything from adjusting your withholding amount, reconsidering your strategy related to charitable giving, or taking advantage of new depreciation rules and tax brackets.  Being familiar with your opportunities as early as possible allows you the most beneficial impact on your finances.

Workplace Retirement Plan Contributions – Time for Review

Further advice from the PFS Credential Committee, this time from CPA/PFS Robert Westley, is that workplace retirement plan contributions are best reviewed at the beginning of the year.  Increasing the percentage of contribution up from the 2018 levels is strongly advised.  For those who benefit from a pay raise, a paired deferral increase is then a painless way to give retirement savings a boost.  A 4% salary raise, for example, paired with a 2% contribution increase, still leaves you with a net paycheck that is higher, as well as higher savings towards retirement.

Consider Making a 2018 IRA and HSA Contribution

PFP Executive Committee member and CPA/PFS, David Oransky, states that the tax-benefiting savings from 2018 are far from over, even though the year might be.  The cut-off date for making eligible Individual Retirement Account (IRA) and Health Savings Account (HSA) contributions is April15, 2019.  He goes on to explain, “The combined traditional and Roth IRA contribution limit is the lesser of $5,500 or your taxable compensation. If you’re filing a joint return but don’t have any taxable compensation of your own, you may still be able to contribute under the spousal IRA provisions. For an HSA, the contribution limit is $6,900 if you have a family high-deductible health plan or $3,450 for self-only HDHP coverage.”

The Best Time for IRA Contributions is NOW

David Desmarais brings to light a unique perspective on Roth and IRA contributions that may benefit taxpayers.  In David’s trusted capacity as a CPA/PFS and PFP Executive Committee member, taxpayers should take note of the fact that direct Roth contributions cannot be made by married couples with modified adjusted gross income that exceeds $203,000.  There is, however, no income limitations on doing a non-deductible IRA contribution or Roth conversion.  Making a non-deductible IRA contribution may be followed immediately by a roll-over to a Roth, otherwise known as a ‘backdoor Roth contribution’.

The immediate roll-over is to ensure that no earnings are gained on the IRA before it rolls over into the Roth, so that no income can be identified on the conversion at assessment.  This can only benefit you, however, if you don’t have other traditional IRAs with untaxed earnings, whether from prior deductible IRA contributions or unrealized gains, because an aggregate has to be calculated on all of the IRAs in the process of determining the amount of taxable conversion.

Review your Current Allocation

Michael Landsberg further advises that taxpayers check their portfolios and ensure these are still allocated according to their financial plan.  2018 showed increased market volatility, which may have caused various asset classes to drift out of balance.  According to Michael, the beginning of January is the best time to analyse these material shifts from 2018’s market performance.  This is where diversification shows its value in managing portfolio risk, and this is what makes rebalancing necessary.

Now is The Time to Make Annual Exclusion Gifts to Heirs

If you are considering making an exclusion gift to an heir, the beginning of the year would be the best time to do so.  Early gifting, according to Robert Westley, may enhance the value of the gifts.  Gifts to beneficiaries at the beginning of the year benefit those looking to reduce their estate’s tax exposure.  Gifts of up to $15,000, given by individuals to an unlimited number of beneficiaries annually, do not impact on the lifetime estate tax exclusion amount or incur a gift tax.  The benefit to your beneficiaries in gifting them early in the year is that they receive a few extra months of potential appreciation from the early gift.

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Fulton Abraham Sanchez, CPA

Fulton Abraham Sánchez, CPA is a Certified Public Accountant, specialized in Tax Planning for Real Estate, Hedge/Equity Funds, Fintech, Crypto, Expats, IRS Debt Resolution and Offshore Strategies. You can email him to fa@fascpaconsultants.com and follow us on Facebook : FAS CPA & Consultants.

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