2019 Year End Tax Tips

By Mitchell J. Smilowitz, CPA

2019 is the second year of the Tax Cuts and Jobs Act (TCJA), passed in 2017. The law resulted in significant changes to tax rates and deductions. More changes are being implemented for the filing of 2019 taxes. This article reviews some of the important changes that were implemented last year, identifies changes that are being implemented this year and suggests some questions to ask your tax advisor in order to reduce the taxes you pay.

Maximize Contributions to Your JRB Retirement Plan

Most tax experts agree that retirement saving is one of the best ways to reduce the taxes you owe. The reason is simple. Every dollar you contribute to your retirement account reduces your taxable income by a dollar (up to federal maximums). Not only do you reduce your taxable income, but the money grows tax-deferred. You only pay taxes when you withdraw the money in retirement – when you are likely to be in a lower tax bracket.

You can use contributions to your retirement account to reduce your taxable income regardless of whether you take the standard deduction or itemize.

Should You Take the Standard Deduction or Itemize?

After a big jump last year, the 2019 standard deduction increases slightly from 2018 – to $12,200 for a single filer, $24,400 for a married couple filing jointly and $18,350 for a single head of household.

While the TCJA greatly increased the standard deduction, it set new limits on itemized deductions. These include the $10,000 cap on state and local property and income tax deductions. The higher standard deduction also makes it more difficult to reach the threshold for itemizing expenses related to charitable donations, student loan repayment and child care. In addition, the threshold for deducting medical expenses has increased. Medical expenses must exceed 10% of your income, up from 7.5% last year, in order to be deducted from income.

Choosing between taking the standard deduction or itemizing – you can’t do both – is a critical decision.

For Retired Clergy: Maximize Your Housing Allowance Deduction

Participation in the JRB retirement plan offers an important tax benefit for retired clergy. Retired clergy can claim up to 100% of the distribution from their JRB account as a tax-free housing allowance. If you are retired and have not yet taken a distribution from your JRB account equal to your housing allowance, contact us or call 888-JRB-FREE (572-3733) by the first week of December. This important tax benefit is only available to those taking distributions from a denominational retirement plan such as the JRB.

Check the Balances on Your Flexible Spending Accounts

If you participated in an employer-sponsored Flexible Spending Account (FSA) in 2019 to pay for out-of-pocket medical expenses, this is a good time to check your balance. FSA balances must be spent by March 15, 2020. You lose any money remaining in your FSA after that date. If money remains in your FSA, this may be a good time to schedule a medical appointment or buy health care items such as prescription eyeglasses.

Adjust Your Tax Withholding

If you end up owing a lot in taxes or you receive a large refund, you may want to consider changing the amount your employer withholds from your paycheck. This will mean completing a new Form W-4 with your employer.

There are at least two reasons to update your Form W-4 if you have to make a large payment to cover your 2019 taxes. First, if the taxes withheld from your pay are 80% or less of what you owe, the IRS charges an additional tax penalty. Secondly, updating the Form W-4 will allow you to even out your payments throughout the year rather than being forced to make a large payment when you file your taxes.

If you receive a large refund, consider that you have just made Uncle Sam an interest-free loan. Adjusting your Form W-4 will increase your take-home pay and lower your refund. If you don’t need the additional money, increasing your retirement contribution can reduce the income taxes you owe while helping you meet your financial goals.

This is a good time to begin preparing for tax filing season. You still have time to make adjustments that can reduce the taxes you pay. This article identifies some of the items you may want to discuss with your tax preparer.