2020 is around the corner, but it’s not too late to take advantage of tax-saving tips…
Compared to 2018, when the Tax Cuts and Jobs Act (TCJA) took effect, 2019 has been a rather quiet year as far as changes in tax law. However, there were still some major shifts in rules and regulations this year. Plus, the TCJA continues to take taxpayers by surprise as they begin looking at their upcoming tax returns.
Here at Robert P. Russo CPA, we help our clients avoid unhappy surprises by empowering them with tax-saving tips – all based on the latest IRS rulings and regulations. For example, did you know the cap on Social Security tax on earned income is rising to $137,700 in 2020 – from $132,900 in 2019? If you’re an employee, that could result in up to $297.60 in extra taxes owed – and up to $595.20 for self-employed folks.
As 2019 winds down, we’re sharing 6 important tax-saving tips with you…
Tax-Saving Tip #1) Negotiate with Your Employer
The inability for individuals to take these previously common miscellaneous itemized deductions is one of the most drastic changes that the TCJA ushered in. This has frustrated many employees, as the following work-related deductions are no longer available:
- Membership in any professional organizations
- Any job-related expenses for travel, meals, transportation
- Education related to advancing your current career
- Home office expenses (if you used a portion of your home for job-related work)
- And this is just the start…
Our best tax-saving tip to overcome this issue is to approach your employer and seek reimbursement – or even partial reimbursement for any of the items above. After all, your employer will be able to deduct the expenses incurred by paying for your job-related training or covering your membership in a professional organization!
Some savvy employees are using this tax-saving tip as a negotiating tool. Instead of asking for a raise, they’re asking for reimbursement for the pursuit of a master’s degree, coverage of all travel expenses and mileage, and more. Crunch the numbers, and see if this tax-saving tip makes sense for you.
If your inability to deduct any of the above expenses is really hurting your income, you might want to consider transitioning to an independent contractor to take advantage of tax-saving tips and tactics made possible by the TCJA – like the 20% QBI deduction.
Tax-Saving Tip #2) Be Charitable…But Be Smart
At year’s end, many people like to donate to their favorite non-profit. Unfortunately, you’ll have to give a much larger amount than you’re used to if you’d like to deduct that donation! Why? Because the TJCA raised the standard deduction for individuals to $12,000 – and $24,000 for couples. But you can still benefit financially from doing good. That’s where this tax-saving tip comes in handy…
It’s time to learn about donor-advised funds. Essentially a donor-advised fund gives you the ability to make a large donation, that the fund manager will dole out to your charity of choice over the next few years. Yes, it’s a larger expense for you up front; however, the benefit is that you can actually deduct it on your tax return. This article provides charitable tax-saving tips and covers how donor-advised funds work.
Tax-Saving Tip #3) Got Crypto? You’re on the Radar of the IRS
This is more of a warning than a tax-saving tip…prepare to fess up to the IRS in 2020 if you generated income from cryptocurrency in 2019. Under penalty of perjury, the IRS plans to include the following question on the new 1040 form:
“At any time during 2019, did you receive, sell, send, exchange or otherwise acquire any financial interest in virtual currency?”
The tricky issue is that even if you bought a few virtual currency coins way back in 2016 and haven’t done anything with them, those currencies could have undergone what is called a “hard fork” resulting in you receiving more currency. Yes, you’d need to report that to the IRS. Review these 3 tax-saving tips and best practices for reporting crypto activities to the IRS.
Tax-Saving Tip #4) Maximize the Benefits of Investing in a Qualified Opportunity Zone
Do you have a major asset that you’re thinking of selling? Perhaps it’s cashing in on a good portion of the stocks in your portfolio, or putting your home up for sale.
If you anticipate capital gain in 2019 (or have already realized that gain), one of the best tax-saving tips we can share is this: consider investing that gain into a Qualified Opportunity Zone or Fund (QOZ or QOF).
But time is ticking! For the biggest tax-savings, you must sell your asset by December 31st, 2019. Then, you have 180 days from that sale to invest capital into the QOZ or QOF. And that’s when the tax-saving tip magic happens. If you keep your investment in that QOZ or QOF until 2026 (7 years from now), your capital gain will be reduced by 15%.
Here’s how this tax-saving tip plays out. Let’s say after selling your property by December 31st, you’ve realized a $200,000 gain. You put that cash into a QOF and don’t touch it until 2026. Instead of paying taxes on that entire $200,000 – you’ll only pay taxes on $170,000 (15% capital gain reduction).
If you wait to sell your asset until 2020 or after, the largest capital gain reduction you’ll get is 10% (if you hold the QOF or QOZ for at least 5 years). Why the time limit on this tax saving tip? Because the QOF and QOZ benefits are only guaranteed through 2026.
Tax Saving Tip #5) When Possible, Turn a Hobby Into a Business
Last but not least, if you have a side business that will undergo a loss larger than the income that business generates in 2019, you may not be running a business after all. The IRS may consider this “side gig” a hobby, in which case you’d lose out on thousands in tax savings. To prevent your loss-generating business from being labeled a hobby by the IRS, you must take these 5 tax-saving tips to heart.
One of the 9 factors the IRS uses to determine if you’re operating a business or indulging in a hobby is whether or not you’re acting in a “business-like” manner. Here at Robert P Russo, we put these tax-saving tips to work and successfully proved to the IRS that one of our clients – and aspiring author – was running a business.
To do this, we showed documentation that the author had printed 2,000 copies of her book, send it to two dozen publishers, traveled on weekends to do book readings, and hired a publicist. These are all things a successful author would do! It doesn’t matter that our author had only sold a few hundred copies, thereby generating a significant loss.
Ultimately, tax-saving tips are only effective if you act on them! Time is running out on 2019, contact us here at Robert P Russo CPA to ensure you’ve done everything in your power to strengthen your tax posture as we head into the new year!