October 23, 2019
Year-End 2019 Tax-Planning Considerations
As I write this article, it’s early October and the temperature is up in the 80s. Even though Mother Nature is making it feel like it’s still summer here in the Midwest, fall already has arrived. And I believe I saw that Christmas is less than 100 days away. So, here we are yet again, heading into another year-end. That means it’s time to begin conversations with your accountant about tax planning before the calendar turns.
For those who are new around here, our belief is that this time of the year is most important to dentists and small business owners. It’s a time to meet with your accountant, review your estimated tax liability, and prepare in advance for any tax bills/overpayments. Once 2020 begins, your opportunities for retroactive 2019 planning become limited. The following is a brief and non-exhaustive rundown of possible questions and topics to discuss with your accountant.
First, review any equipment purchases you’ve already made or that you plan to make. Informing your accountant of these items keeps your tax planner in the loop and allows him or her to educate you on possible ways the purchases can help with taxes. If you already have large write-offs for 2019, your accountant may even suggest you consider waiting until January 2020 to push the purchase into the next tax year.
Next, with a year under our belt of dealing with the Qualified Business Income (QBI) deduction, we know there may be a little more planning involved to take advantage of it.
If you are within the taxable income limits to qualify for this deduction, consider discussing with your accountant options to lower your W-2 income for the year. This can shift more income into the bucket that qualifies for the deduction. Two caveats to this strategy – ensure you are still receiving a reasonable W-2 income and confirm that lowering your W-2 income won’t have any adverse ramifications on your pension strategy.
If you are above the QBI deduction income limits, another strategy to review with your accountant, financial advisor and TPA is whether there are ways to drop your income so you do qualify. In 2018, some dentists were able to increase their contributions to their cash balance defined benefit plans to decrease their taxable income to make them eligible for the QBI deduction. This takes planning work with the aforementioned advisors as well as having the necessary cash flow available.
Then, if your health insurance plan is HSA eligible, confirm that you will make your full HSA contribution for 2019. Contributions are due by April 15, 2020. For 2019, a family can contribute up to $7,000 (plus a $1,000 catch-up if you are 55 or older). There are no income limitations on this contribution and the deduction goes on the front page of your tax return.
Finally, have you maxed out your 401(k) salary deferral? The limit for 2019 is $19,000 (with a $6,000 catch-up if you are 50 or older). If you are incorporated, you must withhold this contribution from your paycheck by Dec. 31, 2019. Don’t neglect to increase your deferral rate to match the 2019 limits.
Taxes aren’t necessarily a complicated topic. But feeling confident about them takes planning and open communication between you and your accountant.
In our next post, my colleague, Tom Bodin, will discuss ways to assess your relationship with your accountant. As always, if there are specific topics you’d like us to tackle, please send us an email!
This commentary originally appeared October 23 on DentalTown.com
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