To ensure that you don’t have any surprises when filing your taxes it is important to meet with your Atlanta CPA when tax planning for your 2019 taxes. One of the most important reasons is to gain a better understanding of the new tax law.
Tax Tip #1: Ensure You are Continually Recalculating your Estimated Payments Throughout the Year
The tax brackets and laws around AMT have changed. It is important to make annualized calculations throughout the year to determine your quarterly payments. The last payment is due on January 15, 2020 and it is a very important deadline to avoid any underpayment penalties. If your 2018 adjusted gross income exceeded $150,000 ($75,000 for married filing separately), your 2019 estimated tax payments or withholding must equal at least 110% of your prior year tax liability, instead of the 100% required for other taxpayers.
Fringe benefits are also table such as imputed income from group term life insurance or the use of your employer’s automobile for personal purposes. This could be additional compensation on your total tax liability and is your responsibility, not your employers.
Plan these appropriately as an overpayment is an interest-free loan to the government and while you will get the money back, the interim time could be used to make the money work for you.
Tax Tip #2: Consider The Implications and Strategies for Your Passive Income
The laws around net investment income tax (NIIT) have also changed. Net investment tax includes interest, dividends, annuities, royalties, rent, and income from a trade or business that is considered passive activities. This is important to discuss with your CPA during your 2019 year-end tax planning as this additional tax could have an effect on your estimated payments.
You may also want to consider grouping your trade or businesses if you own a business through an S-corporation or partnership. If you are thinking about selling your passive assets be sure to discuss the use of certain suspended losses which can reduce other income or gain under the general income rule.
Tax Tip #3: When Tax Planning for Individuals, Take Advantage of State Tax Credits
The 2017 tax law imposed a $10,000 limit on the deductibility of state and local income taxes. Many states created tax credit programs to provide you with federal charitable contribution deductions while simultaneously providing a tax credit against state income taxes. In June 2019, the IRS released Notice 2019-12 which provides a safe harbor to individuals who itemize deductions to treat, in certain circumstances, payments that are or will be disallowed as charitable contribution deductions under the final regulations laws state or local taxes for federal income tax purposes. It’s important to keep records to provide the amount of the contributions you make during the year.
Tax Tip #4: Family Matters in Year-End Tax Planning
Taking advantage of the “kiddie tax” was always a very popular tax planning strategy. However, these rules changed beginning in 2018. Kiddie tax was widely used to transfer property to dependents in order to have the income taxes at a much lower rate. As of 2018, the law subjects the child to be taxed at the trust income rates (which are very similar to the individual tax rates). There are still positives to taking advantage of this, including defer income or possibly to have the child file their own return. It may also be feasible to transfer income-producing property to your children when they are no longer subject to kiddie tax rules since they will still likely have a lower tax rate.
Alimony rules have also hanged. If you are paying alimony, carefully review your situation with your CPA to ensure that you achieve the most desirable tax consequences. It may make sense to modify the agreements to recharacterize payments. Payment of alimony will be more expensive because payments will be made from after-tax rather than pre-tax dollars.
2020 Tax Planning? Marshall Jones’ Certified Public Accountants and Advisors can Help
Overall, having a trusted relationship with your tax advisor will help you to deal with these situations ahead of time. There are a variety of strategies that can be personally tailored to your situation. The Certified Public Accountants and Advisors at Marshall Jones are dedicated Tax professionals and can help you understand and plan for financial success in 2020. Contact Marshall Jones today using our online form or call us at (404) 321-2001.