Wealth Column: End of year tax planning

Bruce Helmer and Peg Webb

Happy tax season!

No, we didn’t misspell “holidays.” While most people think of early spring when they think of taxes, if you want a break on your tax bill, now is the time to be proactive. Here are some steps you should consider before we ring in the New Year.

Deferring Income

If a substantial portion of your income is incentive based, or if you are expecting a large bonus, it might make sense to defer income into 2020, if your employer allows. This makes the most sense if you and your spouse are anticipating a less profitable year next year, or if you had unusual sources of income this year.

If you are self-employed, consider postponing your billing until the end of December, which will allow you to count much of the income next year.

Bunching Deductions

Recent tax reforms have meant a substantial increase in the standard deduction. As a result, it may make sense to “bunch” your deductions, itemizing as many deductions as possible this year, and then taking the standard deduction next year. Examples include charitable donations and medical expenses above a certain amount.


One useful tool for bunching deductions is a Donor-Advised Fund (DAF). It allows you to commit to charitable contributions now, setting them aside in a tax-deductible fund that can then be dispersed when you decide which charities you wish to support. If you find yourself facing a required minimum distribution (RMD), you can utilize a qualified charitable distribution (QCD), which allows you to transfer up to $100,000 per year from your IRA directly to a qualified charity.

Counting Your Losses… And Harvesting Them

If you have an underperforming investment, you can sell it as a loss to offset gains dollar for dollar, plus up to $3,000 of excess loss. You can also carry over losses if you anticipate a higher tax bill next year. This can be part of a broader strategy to rebalance your portfolio. Work with your advisor to determine where and when it might make sense to take losses on certain investments.

Contributing to a Tax-Deferred Account

Now is a good time to make sure you are maximizing contributions to your 401k, 403b or IRAs through your employer. At minimum, you should take full advantage of your employer match. While it is true you have until April 15 of next year to contribute to your IRA for this year, the sooner you increase your contributions, the more time it will have to grow.

Investing in Education

If you have student-age children in your household, use this time to optimize your contributions to their education. Look at state specific tax credits for 529s. Similarly, if you qualify for the American Opportunity Tax Credit (AOTC) keep an eye on income break points to maintain eligibility using the tactics mentioned above.

Before the end of the year, schedule some time with your adviser to discuss your strategy and make sure your tax season works for your wallet.

Bruce Helmer and Peg Webb are financial advisers at Wealth Enhancement Group and co-hosts of “Your Money” on News Radio 830 WCCO on Sunday mornings. Email Bruce and Peg at Securities offered through LPL Financial, Member FINRA/SIPC. Advisory services offered through Wealth Enhancement Advisory Services, LLC, a registered investment adviser. Wealth Enhancement Group and Wealth Enhancement Advisory Services are separate entities from LPL.

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