The year and decade are coming to a close! In between shopping on Amazon, bingeing holiday movies, and reading “best of the decade” articles, everyone should find a little time to do some year-end tax planning. Those of you lucky enough to be working with a competent finance professional (*raises his hand and waves*) have no need to worry; most of this has probably been handled throughout the year. For the rest of you, here are the 10 year-end tax planning topics (plus a bonus recommendation!) that I focus on for my clients:

1.    Spend Down Flexible Spending Accounts (FSAs)

Medical and Dependent Care FSAs are ‘use it or lose it’. While some employer plans allow you to roll over a small portion of your FSA from year to year (often $500), many do not.  If you still have money in your FSA, use it on anything you can! Order some contacts, schedule an extra visit with your dentist, or buy a billion band-aids.

2. Tax Advantaged Accounts

Have you maxed out contributions? You can put up to $19,000 (or $25,000 if you’re over 50) into your employer-sponsored retirement account (401(k), 403(b), or TSP). If you haven’t contributed the max, consider ratcheting it up on your last paycheck to get over the finish line.

You should also ensure that you’ve maxed out contributions to your Health Savings Account (HSA). Individuals can contribute up to $3,500, whereas families can contribute up to $7,000.

Are you self-employed? If you’re self-employed, consider whether you should open a solo or individual 401(k) before year-end. In order to make contributions based on 2019 income, you must have the account open before December 31^st.

Don’t worry about IRA contributions. Traditional, Roth, and SEP IRAs can be opened and funded all the way up through April 15, 2020. While you can fund them before year-end, don’t worry if you have not. I actually prefer to wait until April with my clients, because that way we can let their tax rate influence the Traditional versus Roth decision.

3. Roth Conversions

If you’re retired, you’re a graduate student, or you’ve experienced a low-income year, it may be smart to consider a Roth conversion. For 2019 the standard deduction is $12,200 for individuals and $24,400 for married couples. This gives you a lot of room to convert funds from Traditional to Roth at a 0% tax rate. For those of you with kids, the Child Tax Credit could give you an even bigger 0% window!

4. Tax-Gain Harvesting

If you’re retired, you’re a graduate student, or you’ve experienced a low-income year, it may be smart to consider harvesting some gains in your investment account. That’s right, for a lot of people it makes sense to electively increase their income! The long-term capital gains tax rate ranges from 0% to 23.8%. If your adjusted gross income (AGI) is less than $78,750 ($39,375 for single tax filers), then you may benefit from recognizing capital gains because that income would fall into the 0% tax bracket.

5. Tax-Loss Harvesting

Do you have investments that performed poorly during the year? Individual stocks that you’ve been holding, hoping that they’ll go back up? Turn that frown upside down, cut your losses, and take the tax benefit. You can recognize capital losses to offset capital gains and/or up to $3,000 of ordinary income per year. Excess losses are carried forward indefinitely, so go ahead and take ‘em!

6. Charitable Donations

To benefit from charitable deductions, you must itemize your deductions on Schedule A of your tax return. Itemizing is less common than it was in the past because the standard deduction was doubled under the Tax Cuts and Jobs act to $24,400 for married couples ($12,200 if you’re a single taxpayer). However, if you pay State taxes, real estate taxes, and mortgage interest you may be close to or above the standard deduction bar. If that’s you, get out your checkbook and make those charitable contributions before year-end!

7. 529 Education Accounts

Contributions: If you live in DC or one of the 34 states that provide a state tax deduction for 529 account contributions, you could benefit from making the contribution before year-end.  Fund those accounts now to reduce your state taxes in April!

Distributions: Qualified expenses and their corresponding 529 account distribution must take place in the same tax year. If you incurred some out-of-pocket education expenses this year, make sure you submit for reimbursement before year-end or you could be out of luck!

8. Family Gifts

The current annual gift exclusion is $15,000. If you’re working through a wealth transfer plan or trying to aggressively fund a child’s 529 account, be sure to make the necessary gifts before year-end. That could save you from using up a portion of your lifetime gift exclusion or having to file a gift tax return.

9. Withholding & Estimated Payments

If you’re self-employed or concerned that you’ll owe a lot of taxes when you file your return, consider doing a year-end tax estimate. Paying a portion of the tax due before January 15^th could help reduce interest and penalties charged on a late payment to the IRS.

10. Required Minimum Distributions (RMDs)

If you’re over the age of 70 or own an inherited IRA, you should double check that you’ve met your required minimum distribution for the year. The penalties for failing to meet your distribution are steep! The IRS will charge you 50% of the amount that was not withdrawn.

Bonus Recommendation – Have That Baby Now!

I know this one is somewhat out of your control but giving birth on December 31^st versus January 1^st could put $2,000 dollars in your pocket because of the child tax credit. Tax laws are always changing and who knows if the credit will be available for the next 18 years, so it’s better to get that baby money in your pocket now.