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Year-End 2019: Top 5 Estate and Tax-Planning Strategies

There's still time to act on these helpful tips.

As 2019 comes to a close, it’s once again time to think about any tax planning that could be considered before year-end and the steps needed to implement those strategies. While tax planning is typically not just a once-a-year endeavor, a little extra time spent before December 31 can help optimize your tax positioning now and in the years ahead.

Take advantage of annual exclusion gifts and lifetime exemption

Now is the time when many focus on giving to family and friends, with the annual exclusion gift being the most common method of tax-free giving. In 2019, you may make outright gifts of up to $15,000 ($30,000 for married couples) in cash or property to an unlimited number of individuals without incurring any gift taxes or reducing your lifetime exemption from gift and estate tax. In addition, now is also a good time to consider making larger gifts that would use some or all of your lifetime exemption ($11,400,000 individual, $22,800,000 married for 2019). This means that you may give up to that amount tax-free during your lifetime, with any unused exemption applied against federal estate tax at your death. This increased exemption amount is set to expire on December 31, 2025, barring any legislative action prior to 2026. While 2026 may seem a long way off, it may be best to take advantage of the increase now by making larger gifts that use up some or all of your exemption.

Time your charitable gifts

While many ordinary deductions have been eliminated or cut back under current tax laws, the rules around charitable giving have remained largely untouched. Taxpayers can continue to deduct contributions to public charities up to 60% of their adjusted gross income, while no longer facing the phase-out of itemized deductions. For the charitably inclined who cannot itemize their deductions due to the increased standard deduction ($12,200 single filers, $24,400 married couples filing jointly), it may make sense to “bunch” charitable gifts. By making a more substantial charitable gift this year equivalent to what might be given over several years, that gift should be large enough to itemize. However, this approach could adversely impact a receiving charity that may rely on a similar gift next year. This can be addressed by advising the charity that this is a one-time gift or, more strategically, through the use of a donor-advised fund, from which smaller gifts may be made to the charity in subsequent years while still receiving the charitable deduction in 2019.

Harvest capital losses to offset capital gains

Year-end is also a good time to review your portfolio to determine if losses should be “harvested” to offset capital gains. Tax-loss harvesting is an end-of-year strategy by which underperforming assets are sold at a loss to offset realized investment gains with the aim of reducing overall tax liability. For individuals with large capital gains in 2019, tax-loss harvesting before year-end may result in a meaningful reduction in tax liability. This has the potential to boost long-term investment returns in a portfolio, through effectively deferring payment of income tax on realized gains.

Employ income and deduction timing strategies

For individuals, income is taxable when it is received and expenses are deductible in the year paid. Depending on your circumstances, it may be beneficial to accelerate or postpone income from year to year so that the income is taxed in a lower-income tax bracket. If tax rates are expected to be lower in 2020 due to an expected drop in income, it may be beneficial to defer income until after the New Year. Conversely, if 2020 is expected to be a higher-income year, it may be better to receive any additional income prior to January 1, 2020. Deduction timing is also an important part of year-end planning. In high-income-tax-rate years, it may be advantageous to pay deductible expenses before the end of the year. If 2019 is a lower-income-tax-rate year either because of lower income or reduced tax rates, it might be better to defer payment of those expenses until they are due in 2020 if it is expected that income tax rates will be higher next year. Likewise, if 2019 is a high-income-tax-rate year, it might be advisable to pay expenses prior to December 31 even if the bill is not due until January so that those expenses may be deducted for tax year 2019.

Maximize contributions to tax-advantaged accounts

Regardless of your tax bracket, you may consider taking full advantage of available tax-advantaged accounts, such as employer-sponsored 401(k) plans, IRAs, health savings accounts and 529 plans. The tax advantages of these accounts vary, but they are similar in that they facilitate tax-free growth of funds while they are held in the accounts. It’s important to note that these accounts are subject to certain annual contribution limits. For example, in 2019, the maximum annual contribution to a retirement account is $19,000, with taxpayers over 50 eligible to contribute an additional $6,000.

These are just a few of the year-end steps you can take now to help minimize your tax burden in the future and help you start 2020 optimally positioned. With taxes as with life, good planning is the key to long-term success.


Alvina H. Lo is chief wealth strategist at Wilmington Trust, N.A.

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