Tax law changes add complexity to year-end planning.

 
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While most taxpayers have now filed their first tax return under the law known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97, some got an unwelcome surprise that they won't want repeated on their 2019 tax returns. That surprise came in the form of reduced tax refunds or, in some cases, tax payments due. Although this was due to a confluence of factors, the most notable one was the failure of individuals to adjust their payroll withholding deductions. While they were realizing the benefit of the reduced tax rates under the TCJA in their paychecks, because of changes to the employer withholding tax tables, many individuals did not adjust their withholdings for the decrease in, or the elimination of, deductions taken in prior years. A priority for 2019 year-end tax planning is ensuring that the amount of payroll taxes being withheld from a taxpayer's wages in 2019, or the amount of estimated payments being made for 2019, will cover the taxpayer's 2019 tax liability.

In addition, the following are some yearend strategies for practitioners to consider when advising individuals and clients who file Schedule C, Profit or Loss From Business, on tax planning options for the 2019 tax year.

BUNCHING DEDUCTIONS IN ALTERNATE YEARS

With the increase in the standard deduction to $12,200 (single taxpayers and married filing separately), $18,350 (head of household), and $24,400 (joint returns and surviving spouses), and the $10,000 limitation placed on state and local tax (SALT) deductions, many individuals are not getting as great a benefit from itemizing deductions as they had in the past. Where an individual's total itemized deductions will come close to, but not exceed, the standard deduction for 2019 and/or 2020, one strategy to consider is bunching certain itemized deductions into alternate tax years. This means, to the extent practical, increasing or bunching medical and charitable contribution expenses into alternate years so that, along with a taxpayer's annual mortgage interest and SALT deductions, total itemized deductions exceed the standard deduction, thus giving the taxpayer a greater deduction based on those expenses. In the other years, the taxpayer takes the standard deduction.

For taxpayers interested in making a large charitable contribution in one year instead of spreading the same amount over several years, practitioners should recommend using a donor-advised fund (DAF). Taxpayers can take a charitable deduction for the year the contribution to the DAF is made, while spreading the actual distributions to charities out over several years, allowing the taxpayer to later determine the amount of contributions and the organizations he or she wants to contribute to.

USING AN HSA TO DEDUCT MEDICAL EXPENSES

In 2019, medical expenses are only...

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