Follow These Tips Before Year End And Cut Your 2019 Tax Bill

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According AccountingToday. When the 2017 tax overhaul threatened to eliminate all loopholes, accountants everywhere had to get back to the drawing board to analyze the many changes made to the tax system.  It has been two years, and the profession has found many ways to reduce taxable income and take advantage of the new tax breaks.

Last Minute Strategies

For the end of the year, the strategy is to increase the number of tax credits and deductions you can claim and lower your income that is subject to tax.

Divide Business Into Two

If you are in the fields of:

  • Law
  • Health
  • Consulting
  • Athletics
  • Financial services
  • Brokerage services

amongst others, you do not qualify for the 20-percent small business deduction, but there are some ways to claim the deduction for some of your earnings, though.

One way is to separate the parts of your business that do qualify for the deduction into a new entity (to put a barrier between profits that can get the deductions and those that cannot).

As an optometrist, you do not qualify for the tax break for the work of seeing patients.
You’re the work of selling glasses, you will qualify
Split the business into two entities, one doing the “work” of seeing patients, which does not qualify, and one for the “work” of selling glasses, that does qualify



Donor Advised Funds

A tool that allows you to gift money, deduct the donation upfront, and distribute the funds to charity later on.

In 2017, the tax law increased the standard deduction to about $24,000 for a couple while it limited some deductions for among others, state and local taxes. As a result, many taxpayers have to donate more than in the past to get above the $24,000 limit to file an itemized return.  Now, it is all about timing.

Get Over The $24,000 Hurdle

To get over the $24,000 hurdle, taxpayers can bundle all of their donations into a donor-advised fund in a single year. This way they get the tax benefit for these contributions, and simply take the standard deduction for the next few years.

What You Donate, Matters Too

You do not have to donate cash all the time.  Alternatives that can be given are appreciated securities – the deduction amount is what the asset is worth, not what you paid for it. Strangely, in a low-interest rate environment, if you donate borrowed money, it can benefit you greatly if the tax breaks outweigh the loan costs.

Are You Older Than 70 Years And Six Months?

If you are, you have to start taking distributions from your individual retirement account, which will generate a tax bill for you. However, you can donate as much as $100,000 directly from your IRA instead of distribution, thus avoiding the tax on that money.

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State Tax Preparation

State Tax Exemption

The new tax law almost doubled the estate tax exemption. The lifetime exclusion for 2019 is $11.4 million for an individual, and twice that for a married couple.  The annual gift tax limit is now $15,000.

The IRS also indicated that it will not make these gifts taxable if a future Congress votes to lower the estate tax limit.  Nevertheless, make your gifts now.  You do not have to do it by the end of 2019, but the political mood might shift in favor of estate taxes after the 2020 election.

Maximize Small Business Tax Break

Small business owners and the self-employed are eligible for a 20-percent deduction of business income, subject to lots and lots of limitations, depending on:

  • Field of business
  • Amount invested in equipment
  • How much you pay your employees

BUT, if you are below the threshold for a couple, $321,400, or $160,700 for an individual, you will AUTOMATICALLY GET THE TAX BREAK.

For those above the threshold, there are several ways to legally reduce your income to fall under the caps. This is even more important for those who cannot claim any deductions once they exceed the caps.

This is the case for :

  • Accountants
  • Doctors
  • Lawyers

How To Reduce To Below The Cap

  1. Max out any tax-deferred retirement accounts and health saving accounts
  2. Reduce your taxable income with as much as $225,000 by contributing to a defined benefit retirement plan
  3. Increase employee wages by paying once-off bonuses to increase payroll enough to qualify for the 20-percent deduction.
  4. In the case of an S corporation, those bonuses can also be paid to officers or owners of the company.

Mortgage Tax Break Workaround 

The 2017 tax law restricts the mortgage interest deduction to loans equal to or less than $750,000.  One solution is to take out a mortgage for the value of up to $750,000, and then to borrow the additional funds through a regular loan.

The interest from this loan can be deducted against investment income; if the financing were part of the mortgage, no tax breaks would have been available for the interest.

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Opportunity Zone Deadline

Opportunity zones incentive taxpayers to invest capital gains into distressed areas, and the deadline for this benefit runs out at the end of 2019.

The tax bill for this investment can be deferred by taxpayers until the end of 2026, or when they sell.  Those that invest before the end of this year will get an additional 15-percent basis step-up – which means they will only be taxed on 85-percent of their investment.  Those that invest after the end of this year will pay tax on 90% of their contribution.

While the money remains in the fund, it grows tax-free.  Investors must invest in an opportunity zone within 180-days after they sell stock or business.

Readers should note that this article is only intended to convey general information on these issues and that FAS CPA & Consultants (FAS) in no way intends for the contents of this article to be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services.  This article cannot serve as a substitute for such professional services or advice.  Any decision or action that may affect the reader’s business should not rely solely on the contents of this article, but should rather be consulted on with a qualified professional adviser. FAS shall not be responsible for any loss sustained by any person who relies on this presentation.  This article is subject to change at any time and for any reason.

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

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