7 Smart Planning Ideas for Year-End

The fourth quarter is still an opportunity for some smart tax planning.

1. Remember to maximize retirement saving accounts

If you’ve turned 50, you’re able to make a catch-up contribution of $6,000 in your 401(k) or 403(b) plan. It’s not too late to catch up for 2019—and also make an election for 2020. Also, anyone with earned income can contribute to a traditional IRA.1 Only the tax deductibility of an IRA contribution may be limited. Unfortunately, Roth IRA contributions have income limits—but non-deductible IRA contributions may be converted into a Roth account without tax impact in some instances.

If you’ve not already maxing out your 401k or 403(b) for this year, you can still increase paycheck deferrals in November and December. And in January, you can make an IRA contribution for 2020. Why not do it early and get a faster start on your savings plan?

IRA chart

2. Review your capital gains and losses for the year.

Mutual fund capital gain distributions typically are announced during the fourth quarter, in addition to stock and fund gains and losses you may have from previous trades. After taking distributions into account, what should you do? If you are in the 22% or higher federal tax bracket, “tax-loss harvesting” may make tax sense. You can “harvest” losses in excess of gains but are limited to taking not more than $3,000 in losses in excess of gains in 2019. Losses not used this year can be carried forward indefinitely for tax purposes.

The long-term capital gain tax rate in the two lowest marginal tax brackets (10% and 12%) is 0%. If you have projected taxable income of less than $51,675 for single filers, or $103,350 for married filing jointly (assuming using only standard deductions for those under age 65), you may recognize long gains taxable at a 0% tax rate. Such tax-gain harvesting techniques will seem even smarter when tax rates increase once again.

3. Review potential itemized deductions for 2019.

Surveys indicate that fewer taxpayers itemize because of increased standard deduction. The IRS allows every personal taxpayer to take a standard deduction without itemizing. To benefit from filing a Schedule A for itemized deductions, total deductible items must exceed $12,200 for singles or $24,400 for marrieds. (Some states like New York still have the previous much lower itemized deduction allowances.) Due to the federal state and local tax (SALT) $10,000 deduction limitation, and mortgage interest deduction limitations, the new federal standard deduction applies to nearly 90 percent of taxpayers.

Standard deduction chart

Apart from those few who incur higher insurance premiums and substantial uninsured health-related expenses, one deductible item you can control are charitable contributions. Let’s see how smart planning can leverage contributions for tax savings.

First, contributions are deductible only in the year they are made. So you must make charitable donations by year-end to take them this year. Therefore, donations charged to a credit card before the end of 2019 will count for 2019—even if the credit card bill isn’t paid until 2020. Also, letters with checks must be postmarked in 2019 to count for 2019.

When planning, consider the potential tax-leverage of gifting appreciated securities instead of cash. Gifting $50,000 in publicly traded stocks (or appreciated mutual funds) with a cost of $10,000 could save up to $9,520 in tax ($40,000 X 23.8%); plus, you still receive a charitable deduction. The top marginal tax bracket rate possible for federal long-term capital gains is 23.8%. States like New York can tax up to an additional 8.82%, and not even offer an offsetting federal itemized income tax deduction on Schedule A.

4. Advanced wealth planning: Qualified charitable distributions.

If you are charitably inclined, at least age 70½, and modest itemize deductions, a qualified charitable distribution (QCD) may be a smart solution. A QCD allows tax-free transfers up to $100,000 directly from an IRA to a qualifying charity. Also, a QCD must be completed by December 31st for a given current tax year.

This technique is ideal for those who do not need the income but are required to make a minimum distribution (RMD). The QCD can be made in place of an RMD. It also makes itemizing that deduction unnecessary, and perhaps avoids the need for a Schedule A.

Donating a QCD correctly to a charity not only reduces both adjusted gross income (AGI) and taxable income but may reduce higher Medicare premiums in the future by not crossing $85,000/ $107,000/ $133,500 levels for singles, or $170,000/ $214,000/ $267,000 for couples, potentially saving up to $7,267 a year for higher income couples.

Additionally, due to making a QCD rather than taking RMD may help the AGI fall below $250,000 for a married filing jointly couple or $200,000 for a single individual. In that case, investment income would not be subject to the federal 3.8% Net Investment Income Tax on capital gains. And for some retirees choosing to live a relatively modest lifestyle while also inclined to make substantial charitable gifts, in some cases their Social Security subject to income tax could be reduced in some years.


Proactive income distribution and tax planning before year-end can overcome an inability to itemize charitable deductions in some years due to the federal standard deduction.

Mr. and Mrs. Smith, ages 55 and 54, have these projected itemized deductions for 2019:

Itemized deduction chart

This is less than the standard deduction of $24,400, so no itemized federal tax return would be submitted. (The problem would be worse once the home mortgage is paid off and no interest remains to be deducted, and high New York taxes are capped.)

So what can the Smiths do to save taxes when they don’t make large charitable gifts each year? The technique is to “lump and clump.” Rather than gift $2,500 each year, the Smiths could “lump” four or even more years of charitable donations into a single year! By “clumping” those donations into a special charitable vehicle called a “donor-advisor fund” (DAF), they can make a series of $2,500 annual “grants” to their church or community or other causes.

Projected itemized deductions chart

This is more than the standard deduction of $24,400, so the Smiths are positioned to itemize and gain a true tax savings benefit from charitable contributions that they already planned to make in future years.

Although the Smiths may not be able to make $10,000 charitable contributions every year, by planning carefully in advance, they may “clump” $10,000 one year into a DAF. Thy would receive a tax deduction in 2019 for their entire DAF contribution. After that, the Smiths decide when to make grants and which charities will receive those grants. Meantime, monies are invested, and earnings are tax exempt. Done early in the year, their usual charity could still receive the $2,500 they planned on by the end of 2019.

Contributions to DAFs are not limited to $10,000 or even $100,000. For those who desire to make a big impact in their church, community or causes they care deeply about, and have an extraordinary income event in a given year (say from an employer bonus, exercise of stock options, or even the sale of a company), DAFs offer an exceptional opportunity to magnify your charitable giving without committing to any particular charity or timeframe for payout in advance.

Special note for greater tax savings: Donor Advised Funds accept appreciated securities as well as cash. Selling appreciated public shares contributed to a DAF has no tax impact.2

Donor Advised Funds chart

5. If you plan gifts to family or friends, do it by year end so you can give again next year.

You can give up to $15,000 to anyone and to any number of people without filing a gifttax return. If recipients have lower income than you, consider gifting highly appreciated securities, which removes the gain from your portfolio. Recipients with lower income will pay less tax on sale and they may even qualify for a 0% federal capital gain rate.

Don’t gift portfolio losers; you need them to offset your own gains, and donees won’t benefit from your loss position, but instead assume the lower value as their tax basis.

6. Don’t forget that today’s tax brackets are only lower temporarily.

Take advantage of current lower federal tax rates and consider the benefit of Roth conversions this year and in successive years while brackets remain low. Roth conversions are not necessarily costly. Pairing tax strategies can mitigate tax impact. For instance, charitable contributions to a DAF for 2019 could be matched to a Roth conversion. If a passive activity with suspended losses from a commercial property sale is unsuspended—a Roth conversion is a smart way to utilize those phantom losses. Unlike earnings limitations on annual Roth contributions, Roth conversions have no limits.

7. Why pay more tax now when you could pay less tax later?

Smart tax planning generally accelerates deductions and defers realizing income. While most income and expense may be beyond your control, some things offer you a choice. Consider deferring income from bonuses, consulting, self-employment or realizing capital gains—and taking advantage of IRAs and qualified plans. For deductions, you may be able accelerate charitable contributions, state income and property taxes, and sometimes interest payments.

Tax planning is not only a year-end exercise. For greater tax savings and higher net returns, find a competent CPA or CFP wealth management professional with experience in tax planning to mitigate the impact of taxes and so magnify your wealth outcomes.

1Traditional IRA Limitations Source: See IRS Publication 590. Those over age 70 cannot contribute.

2Please note that charitable substantiation requirements apply per IRA pub 1771: “A donor can deduct a charitable contribution of $250 or more only if the donor has a written acknowledgment from the charitable organization.” The donor must get the acknowledgement by the earlier of the date the donor files the original return for the year the contribution is made, or the due date, including extensions, for filing the return.

Please note that (i) any discussion of U.S. tax matters contained in this communication cannot be used by you for the purpose of avoiding tax penalties; (ii) this communication was written to support the promotion or marketing of the matters addressed herein; and (iii) you should seek advice based on your particular circumstances from an independent tax advisor.