Year-End Tax Planning - In General

Here is a quick list of things to do by December 31st:

If you make regular donations to charity by check or credit card, consider making your January contributions in December.  And, those used electronics, clothes, furniture, books, etc. that you've been meaning to donate to charity must be dropped off by December 31st. (Note: if you give more than $5,000 worth of items, you may be required to have an appraisal.)  Make a list of the items donated, and attach it to the receipt that you receive from the charity.  The Salvation Army publishes a guide to the value of donated items.  And if you would like to donate a car and have the proceeds to go to a local charity, check out Center for Car Donations.

If you have access to a 401(k) plan, be sure to contribute the maximum, $18,500, before the end of the year.  The limit is increased $6,000 for people age 50 and over.  The maximum for 2019 is $19,000, plus potentially the $6,000.

You can make your January 1st mortgage payment a week early so that the interest deduction falls in this year.  

Parents paying qualified college costs will want to plan to take full advantage of the American Opportunity Credit.  The credit is 100% of the first $2,000 of qualifying expenses plus 25% of the next $2,000.  Qualifying expenses are tuition, books, supplies, and equipment such as computers and printers.  If you haven't already paid $4,000 this year, you may want to pre-pay some January expenses to take advantage of the full credit.

If you have sold stocks at a profit during the year, see if you can sell losing stocks to offset the gains.  You can deduct up to a $3,000 net loss for the year.  Any loss balance is carried over to future years.

If you purchase a qualified electric car by 12/31, you may receive a tax credit of up to $7,500.  The date that you take possession of the car is extremely important for determing how much your credit will be. (Teslas delivered during the first half of 2019 will qualify for a credit of $3,750, while deliveries in the second half of the year qualify for only $1,875.)  The IRS provides a list of vehicles that qualify and the credit amounts on its web site.  There is a separate tax credit for recharging equipment. 

If you purchase a solar electric system for your home in 2018 or 2019, you may receive a tax credit of 30% of the cost.  The credit declines to 26% in 2020.

If you have "high-deductible" medical insurance, consider opening a Health Savings Account.  You have until next April 15th to set up and fund the account, so this isn't technically a "year-end" tax planning item.  If you qualify and you usually have significant out-of-pocket medical expenses, you should definitely look at this.

If you've loaned money to someone and will not be repaid, take the necessary steps by 12/31 to ensure that you can claim a bad debt tax deduction.

Status of the California College Access Tax Credit:  The IRS issued regulations on 8/23/18 which were aimed at a different tax law, but which may have the effect of eliminating this tax credit beginning 2018.  We do not know yet whether the regulations will be adopted.  California has a College Access Tax Credit which funds the Cal Grant Program.  For contributions made for 2018, you receive a 75% tax credit on your California return, as well as the usual charitable contribution tax deduction on your federal return.  To claim the state credit and the federal tax deduction, you must (1) apply on the CEFA's web site www.treasurer.ca.gov/cefa to receive a certification number no later than November 30th, and (2) make the contribution within 20 days from the date on the certificate. The combined federal and California tax benefit of a contribution is about 90% for people in the highest tax brackets. Only contributions of cash are accepted; contributions of stock are not allowed. 

The above ideas apply to most people who expect to be in the same tax bracket in 2019 as in 2018.  Additional information for special situations is at:

Year-End Tax Planning if You've Had a Terrible Year

Year-End Tax Planning if You've Had a Great Year

Year-End Tax Planning for Businesses

I wish you and yours a safe and happy new year.

Bess
bess@besskanecpa.com