Two Last Minute Tax Planning Tips for 2019

The end of 2019 is quickly approaching. While most people are consumed with Christmas shopping and end of year holiday festivities, this is also the time of year that many of us start thinking about ways to minimize our tax liabilities. What many people fail to realize is that with the right planning, knowledge of the tax code and a good accountant, we can save hundreds, if not thousands of dollars each year. That’s extra money that can be reinvested into your business, home, retirement account or added to savings. You may have already thoroughly researched ways to reduce your 2019 tax bill, but below are two last-minute tax planning tips that you should strongly consider for 2019.

Consider converting your traditional IRA to a Roth IRA

The new tax rates put into effect in 2018 are set to expire by 2025. The future is uncertain and there is a real possibility that tax rates could increase substantively at some point in the next decade. One way to lock in today’s rates is by converting all or least part of your traditional IRA into a Roth IRA account.

Many individuals are deterred from contributing to a Roth IRA simply because you have to pay taxes on it upfront. However, many financial advisors have correctly pointed out that federal taxes at the moment and at least until 2025 are relatively low. At some point, you are going to have to pay taxes on your retirement contributions, whether it is upfront or when you decide to cash out. In the long run, you will very likey save more money and ultimately increase your retirement nest egg by paying relatively low upfront federal taxes until 2025 and then not being burdened by an extra tax when you do decide to retire and withdraw from your account

Don’t forget about the fundamentals: tax-loss harvesting, retirement and RMDs

Although there was a fairly notable shakeup to the US tax system in 2018, many important tax rules were uneffected, such as those regulations governing tax-loss harvesting, retirement savings, charitable contributions and required minimum distributions (RMDs). Therefore, it is wise not to get caught up in the changes, but rather stay focused on those policies which will ultimately lower your tax liabilities and increase your overall wealth.

One of the best things you can do to minimize taxes is max out retirement and health savings accounts. The 2019 contribution limit for retirement accounts is $19,000 and if you are over 50, you can contribute an extra $6,000 for a total of $25,000. In 2020, the retiremment contribution amount will increase by $500. Remember that you can contribute to your workplace savings account until December 31st of this year.

Another effective way to reduce your taxes is to contribute to a health savings account (HSA). In 2019, the maximum contribution for an HSA is $3,500 for individuals and $7,000 for a family plan. Check with your employer to see if they offer family coverage. Remember that the deadline for 2019 contributions to an HSA is actually April 15, 2020.

Finally, don’t forget about the tax-loss harvesting stategy to reduce your overall capital gains tax. You can offset your capital gains tax liability by selling another security for a loss. Remember that you have until December 31st to do so.