Financial Markets and Office Holiday Schedules:
The U.S. Financial Markets will be closed on Wednesday, December 25th for Christmas, and will also close early on Tuesday, December 24th at 12:00 noon CST for Christmas Eve. Our offices will be closed on both Tuesday, December 24th and Wednesday, December 25th for the Christmas Holiday. The U.S. Financial Markets will also be closed on Wednesday, January 1st for New Year’s Day. Our offices will be closed on Tuesday, December 31st for New Year’s Eve as well as Wednesday, January 1st for New Years Day. As is always the case, should you need to get in touch with us when our office is closed, you can either call and leave a voicemail or email us as well. We will be checking voicemail and email on a regular basis. We wish all of you and yours a very blessed and Merry Christmas as well as a safe and Happy New Year!
Year-End Reflecting and Looking Ahead:
It’s hard to believe there is only 28 days left in 2019 and now only 22 days until Christmas! As a new year approaches, it is only natural for us to reflect on how things went in 2019. Personal and professional accomplishments may take center stage. Or, we may take stock of any disappointments and set new goals as 2020 approaches. We all know it’s a busy time. Christmas shopping, holiday parties, tree trimming, family visits, and year-end cheer may already be stacking up on the calendar.
Nevertheless, it’s not too soon to start thinking about taxes for 2019 and any year-end planning that might help your tax bill for this year. As with any tax matters, it’s also a good idea to consult with your tax advisor.
Let’s get started
Late last year, the IRS announced the tax year 2019 annual inflation adjustments for more than 60 tax provisions, including those for tax brackets that determine the rate we pay on taxable income. Revenue Procedure 2018-57 provides details about these annual adjustments.
Tax brackets and tax rates have changed. Table 1 and table 2 compare the tax tables for 2019 versus 2018. For example, if you are single and your taxable income on line 11b of the Form 1040 is $84,000, your top marginal rate is 22%.
|Table 1: Single filers|
|Single filers 2019||Single filers 2018|
|Taxable income||Rate||Taxable income||Rate|
|$0 – $9,700||10%||$0 – $9,525||10%|
|$9,701 – $39,475||12%||$9,526 – $38,700||12%|
|$39,476– $84,200||22%||$38,701 – $82,500||22%|
|$84,201 – $160,725||24%||$82,501 – $157,500||24%|
|$160,726 – $204,100||32%||$157,501 – $200,000||32%|
|$204,101 – $510,300||35%||$200,001 – $500,000||35%|
|$510,301 or more||37%||$500,001 or more||37%|
Source: Tax Foundation 2019 Federal Tax Rates, IRS US Tax Center 2018 Federal Tax Rates
|Table 2: Married filers|
|Married filing jointly 2019*||Married filing jointly 2018|
|Taxable income||Rate||Taxable income||Rate|
|$0 – $19,400||10%||$0 – $19,050||10%|
|$19,401 – $78,950||12%||$19,051 – $77,400||12%|
|$78,951 – $168,400||22%||$77,401 – $165,000||22%|
|$168,401 – $321,450||24%||$165,001 – $315,000||24%|
|$321,451– $408,200||32%||$315,001 – $400,000||32%|
|$408,201 – $612,350||35%||$400,001 – $600,000||35%|
|$612,351 or more||37%||$600,001 or more||37%|
*or Qualifying widow/widower
Source: IRS provides tax inflation adjustments for tax year 2019
The personal exemption eliminated with tax reform; child tax credit increased.
The $4,050 personal exemption was eliminated starting 2018. However, the child tax credit doubled to $2,000 per qualifying child, subject to income limitations. It is available to parents of children 16 or younger. It begins to phase out at $200,000 of modified adjusted gross income for single filers. This amount is $400,000 for married couples filing jointly.
The increase in the standard deduction will simplify filing for some.
The standard deduction for married filing jointly rises to $24,400 for tax year 2019, up $400 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $12,200 for 2019, up $200. For heads of households, the standard deduction will be $18,350 for tax year 2019, up $350.
Some itemized deductions have been reduced or eliminated.
If you itemize, state and local income taxes, property taxes, and real estate taxes are capped at $10,000 total for the calendar year. Anything above this amount cannot be deducted against income.
All miscellaneous itemized deductions are eliminated, including deductions for unreimbursed employee expenses, tax preparation fees, the deduction for theft, and personal casualty losses, although certain casualty losses in federally declared disaster areas may still be claimed. For charitable contribution, you may generally deduct up to 50% of your adjusted gross income, but 20% and 30% limitations apply in some cases.
In 2019, the IRS allows all taxpayers to deduct the total qualified unreimbursed medical care expenses for the year that exceeds 10% of adjusted gross income. That’s up from 7.5% of AGI in 2017 and 2018.
Penalties have been eliminated for not maintaining minimum essential health insurance coverage.
This is per the Tax Cuts and Jobs Act; for 2018 the penalty was $695.
Estates of decedents who died during 2019:
There is a basic estate tax exclusion amount of $11,400,000, up from a total of $11,180,000 for estates of decedents who died in 2018. The annual exclusion for gifts is $15,000 per person for calendar year 2019, as it was for calendar year 2018.
The points above are simply a summary of some of the tax changes for 2019. If you have any questions or concerns, don’t hesitate to call.
6 Smart Planning Moves to Consider Before Year-End:
- Review your person risk tolerance or portfolio strategy?
Has your tolerance for taking risk changed? While market selloffs this year have been modest by historical standards, did you take volatility in stride, or did you feel any uneasiness? If so, this may be the right time to evaluate your approach. If so, let’s discuss at your earliest convenience for a re-evaluation.
- Take stock of changes in your life:
Review insurance policies and beneficiaries. Let’s be sure you are adequately covered. At the same time, it’s a good idea to update beneficiaries if the need has arisen. It’s also a good time to review your current estate plan to be sure it still meets your current goals.
- Beat the tax-loss deadline
You have until December 31 to harvest any tax losses and/or offset any capital gains. It may be advantageous to time sales in order to maximize tax benefits this year or next. Also, don’t run up against the wash-sale rule that could disallow a capital loss. A wash sale occurs when you sell a security at a loss and then purchase that same security or “substantially identical” securities within 30 days, either before or after the sale date. We typically look at all the “taxable” accounts under our management each December in an effort to try and take what losses we can to offset realized gains, but it would be helpful to know of any other assets/accounts you may have that we don’t manage as well to be aware of any additional losses you might have for 2019.
- Mind your RMDs
Required minimum distributions, or RMDs, are the minimum amounts a retirement plan account owner must withdraw annually, generally starting with the year that he or she reaches 70 ½ years of age. Some plans may provide exceptions if you are still working.
The first payment can be delayed until April 1 of the year following the year in which you turn 70½. For all subsequent years, including the year in which you were paid the first RMD by April 1, you must take the RMD by December 31. While delaying the RMD until April 1 can cut your tax bite this year, please be aware that you’ll have two RMDs in 2020, which could bump you into a higher tax bracket. Don’t miss the deadline or you could be subject to a steep penalty.
- Contribute to a Roth or traditional IRA
A Roth IRA gives you the potential to earn tax-free growth (not just deferred tax-free growth) and allows for federal-tax free withdrawals if certain requirements are met.
You may also be eligible to contribute to a traditional IRA, and contributions may be fully or partially deductible, depending on your income and circumstances. Total contributions for both accounts cannot exceed the prescribed limit.
There are income limits, but if you qualify, you may contribute $6,000, or $7,000 if you are 50 or older. This is up $500, respectively, from 2018. You can make 2019 IRA contributions until April 15, 2020 or when you file your 2019 income tax return, whichever comes FIRST. (Note: State holidays can impact final date).
- Do your charitable giving
Whether it is cash, stocks or bonds, you can donate to your favorite charity by December 31, potentially offsetting any income. Did you know that you may qualify for what’s called a “qualified charitable distribution,” or QCD if you are over 70 ½ years old? A QCD is an otherwise taxable distribution from an IRA or inherited IRA that is paid directly from the IRA to a qualified charity.
A QCD may be counted toward your RMD, up to $100,000. This becomes even more valuable in light of the recent tax reform, as more taxpayers will no longer be able to itemize. Given the increase in the standard deduction and limits on state income and property taxes, annual year-end gifts to your favorite charity may not exceed the higher thresholds. Therefore, you may consider giving an annual gift in early January. When coupled with an annual gift next December, you might reap the tax advantages from itemizing in 2020.
We trust you’ve found these planning tips to be helpful. Again, please let us know if you have any questions or we can be of further service at any time.
As we have discussed during volatile periods, your personal financial plan is a long-term financial roadmap toward your personal financial goals. In part, it removes the emotional component that makes us want to sell when stocks are declining. Conversely, it helps prevent undue optimism when markets are hitting new highs. We are reluctant to forecast where stocks might be next month or next year. There are too many unpredictable variables that can influence short-term action. We do remain in generally a more cautious mode for all risk levels at this time as we close out 2019 and move into 2020. That said, we are pleased with the net results so far this year for all risk levels given the overall risk/reward ratio for our client accounts at this time. The fixed income portion in our portfolios has provided above average returns this year as interest rates have fallen (bond prices have risen) as well as provided some balance and stability when stock prices become more volatile. Mortgage rates have also trended lower since the beginning of this year, with the current fixed rate for a 30-year mortgage now at 3.75%, while the 15-year fixed rate is 3.17%. (Bankrate.com)
We do not anticipate any major changes to our current outlook as we move into 2020 and will keep you posted. We don’t know if the economy will grow next year from where it ends this year. A trade agreement with China has yet to be completed, political uncertainty, and the FED’s decisions in the future still linger. These are just a few items we will watch as we close out 2019 and look forward to 2020.
If you have any questions or would like to discuss any matters, please feel free to give us a call. As always, we appreciate the privilege to be of service and look forward to serving you in the years ahead.
God Bless, Merry Christmas, and Happy New Year!
Your TEAM at F.I.G. Financial Advisory Services, Inc
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