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Make These Tax Moves Before December 31

Make These Tax Moves Before December 31
(Dreamstime)

By    |   Friday, 15 November 2019 10:17 AM

It’s almost a certainty.

Sometime in January or February, someone will walk into a CPA’s office with reams of tax-related records and say, “Here you go. Here’s what I did last year. What do I owe in taxes? What can we do to fix things so that I owe less?”

Sorry to say, that’s a little late to be worrying about your debt to the IRS. Reducing your tax bill is about looking ahead, not looking back. Once the calendar makes its inevitable turn from Dec. 31 to Jan. 1, there’s not much anyone can do to minimize your tax situation from the previous year.

In other words, when we all greet the arrival of 2020, not only will this year be history, but so will any chance you have of writing a smaller check to your friends at the Treasury Department.

That’s why, now that we’ve entered the final quarter of 2019, it’s crucial that you be proactive about your tax planning and perhaps set up a visit with your tax professional to discuss whether there’s anything you can do right now that you are going to kick yourself for not having done when January arrives.

Part of the problem, perhaps, is that we tend to think of the tax deadline as April 15, which it is for filing. But in terms of taking any sort of action that will have an impact on what you owe Uncle Sam, the true deadline is Dec. 31.

And let’s face it, even though technically you have until the final second of the final minute of the year, in reality the time to act is much sooner than that. If you wait until the week between Christmas and New Year’s Day, your tax professional won’t have much time to act on any adjustments that you might need to make.

Potential tax savings, of course, are going to vary depending on your particular situation, but here are just a few things to consider as you try to pay Uncle Sam less and keep more for yourself:

  • Have a team in place. You likely can save a lot more if you have not just one knowledgeable person working on your behalf, but an entire team, such as a tax professional, an investment professional, and an estate planning professional. Those people should be communicating with each other to make sure everything is in alignment and that a move you make on the tax side of things, for example, isn’t negatively affecting your investment plans.
  • Consider a Roth conversion. One of the things I like to talk about is taking the IRS and flipping it around to SRI – Strategic Roth Integration. If you have tax-deferred retirement plans, such as a traditional IRA or a 401(k), you can start moving that money into a Roth account, which can save you tax dollars in the long run. With tax-deferred plans, you have to pay taxes on your withdrawals in retirement, but you don’t with a Roth. You will pay taxes when you make the conversion, but you can spread the conversion over several years to limit the hit. It’s always best to talk with your tax planner about the most advantageous way to handle this for your situation.
  • Be aware of potential tax implications when selling assets. Just recently, I learned of someone who sold a commercial building for $2 million with a cost basis of basically zero. Zero also happens to be the amount of tax advice this person received before making the sale. Once the closing has passed, there’s not much that can be done to minimize the capital gains tax that will have to be paid. If you are contemplating the sale of real estate or a business, you need to have a conversation with a professional ahead of time about the best way to structure the deal for tax minimization and investment strategy.

We all know from experience that the end of the year can creep up on us quickly. If you procrastinate, Uncle Sam will enthusiastically collect those extra dollars from you, and your New Year will get off to a less than happy start.

About David Brooks Sr. is an Investment Adviser Representative (IAR) and the founder-president of Retire SMART.

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Part of the problem, perhaps, is that we tend to think of the tax deadline as April 15, which it is for filing. But in terms of taking any sort of action that will have an impact on what you owe Uncle Sam, the true deadline is Dec. 31.
tax, planning, year, end
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2019-17-15
Friday, 15 November 2019 10:17 AM
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