Year-end Tax Planning

Are You Write-off Ready?

By Kathryn R. Burke

[December 2019 | San Juan Silver Stage]

Shoulda. Coulda. Woulda. But didn’t! Don’t let this be you at 11:59 P.M. on December 31st, when you realize it’s a little late to manage those tax deductions you were counting on. Life got in the way. You got busy, tax planning plummeted to the bottom of your to-do list, and just didn’t get done. The clock is ticking down to 2020 and it’s time to lift a class of celebratory champagne,too late to toast a well-planned, year-end accounting plan.

If you’re reading this in early December instead of at the end of it, you’ve still got some options. The first, of course, is to visit with your tax and financial advisors. When it comes to Uncle Sam, you don’t want to risk relying on “free” advice you get by Googling “tax deductions.” Tax laws change every year, and they are complicated. Don’t guess. Ask an expert.

When you do have that conversation, here are some of the things you may want to consider.

The IRS allows certain tax advantages to create an incentive charitable gifting. Gift (most) anything that appreciates, like stock or real estate, for example, and avoid paying capital gains. Donate a car, unless it’s a collectible, and get a charitable tax deduction.

Make a Qualified Charitable Distribution (QCD). If you’re 70½ years old or older and have an IRA, you can gift up to $100,000 of it to any charity, and it’s tax free.

Set up a Donor Advised Fund (DAF). Think of a it as a bucketful of money. Fill up the bucket with as much as you want then, when you’re ready, dip charitable donations out of it. You control the contents, disbursing what you want when you want. You can dump it all at once, siphon it out piecemeal, or hang on to it for years. A DAF acts like a trust; the only caveat is that it has to have a 501c3-designated beneficiary.

Consider a Conservation Easement. If you’re a farmer or rancher and want to preserve your land and protect it from development, you can set up an easement that’s good for 99 years, and it’s totally tax deductible to you.

Look into a Reverse Mortgage. (See article). Even if you’re in good health now, the time might come when you need help. The cost of caregiving can be sky-high and isn’t getting any lower. As our population ages, the need for care can put a financial burden on families and eat up all the assets. On average, the elderly wind up in assisted living for up to five years and a nursing home for three. People live longer and enjoy life more if they stay home during those final years. Take out a reverse mortgage and use the equity like income to pay for elder care when the time comes.

Ask your tax advisor about your eligibility for prepayment of college tuition and 2020 business expenses for a 2019 write-off.

Take advantage of IRS Section 179. If you own a small business and need new equipment, buy it now, write it off, and take the business expense deduction, rather than carrying it on your books as depreciable. You don’t have to take possession of it, but you do have to pay for it before December 31st. This is one thing you could actually do before you make that New Year’s toast. If you’re a habitual Last Minute Larry, order online in the nick of time and still get the deduction.

There’s more, like rolling an IRA into a Roth (which accumulates tax free), utilizing the “Hope Credit” for higher education expenses, taking advantage of home sales that are free of capital gains, as well as lots of other tricks for cutting your tax liabilities.

The information in this article is culled from my notes taken while visiting with John Leu at Fidelity Mortgage and Jim Elder at Eldorado Financial. The ideas presented are only suggestions, and any errors are mine alone. Consult with your financial advisor before making any tax decisions.

Tuesday, December 10th is Colorado Gives Day

THIS ANNUAL STATEWIDE MOVEMENT, celebrating its 10th anniversary, increases philanthropy in Colorado through online giving. The $1.5 Million Incentive Fund made possible by Community First Foundation, FirstBank and other community members boosts the value of every donation. ColoradoGives.org encourages charitable giving by providing comprehensive, objective and up-to-date information about Colorado nonprofits and an easy way to support them online. Make your donations on ColoradoGives.org on Dec. 10 or schedule in advance.