We are quickly approaching the April 15th deadline to file your 2019 tax return. Hopefully, you find yourself in a situation this year without any surprises in money owed to Uncle Sam. At Marzano Capital Group, we work closely with our clients and their tax advisors to develop an appropriate tax strategy. While every client’s situation is different, below are the top three strategies we are discussing with our clients.
TAX LOSS HARVESTING
Tax-loss harvesting is when you sell investments at a loss in order to reduce your tax liability. You can harvest losses to offset gains, dollar for dollar, as well as an offset of up to $3,000 in earned income. Per the IRS, when under the rule with the sale of a security for a loss, you cannot repurchase a substantially identical investment for 30 days. Keep in mind, tax-loss harvesting only applies to taxable investment accounts, and the strategy requires attention to detail. However, it may be worth it to consider. When we lower our taxable consequence, it’s helps our overall return.
QUALIFIED CHARITABLE DISTRIBUTION
Charitable-minded taxpayers over the age of 70½ who are financially comfortable and do not need their required minimum distribution (RMD) to meet their living needs have another strategy available to them. These investors may be able to make a qualified charitable distribution (QCD) from their traditional IRAs directly to a non-profit organization. This move satisfies their annual IRA (RMD) obligations and avoids income tax on the transferred amounts to non-profits. Keep in mind, QCD transfers will not qualify for a charitable deduction on your tax return, the benefit is that no one pays any taxes on the amount donated if it goes directly from your IRA to the charity. A word to the wise; taxpayers should be aware of specific rules prohibiting making QCDs to donor advised funds or private foundations or from SEP IRAs, SIMPLE IRAs or 401(k) plans.
“BUNCHING” CHARITABLE DONATIONS
The Tax Cuts and Jobs Act (TCJA) passed at the end of 2017, brought about some of the most comprehensive changes in tax law that we have seen in decades. From a tax planning perspective, due to the substantial increase in the standard deduction, a larger percentage of individuals no longer itemize on their tax returns. For those who are right on the cusp of benefiting from itemization – $12,000 (single) or $24,000 (married filing jointly) – there is still one tax planning strategy surrounding charitable contributions that could produce a benefit. Bunching or bundling of itemized deductions is where a taxpayer chooses to “bunch” donations to charities in a specific year while limiting donations in the subsequent year(s). Essentially, the taxpayer gives the same amount to charity annually; however, the timing of when they chose to take the tax deduction(s) allows them to benefit by “bunching” multiple years’ worth of gifts into one tax year’s return to get that itemization number above the standard deduction.
If any of the above the strategies sounds like something that could help your situation, I urge you to have a discussion with your financial and tax professionals. While these strategies may not be any help with your 2019 situation, perhaps one or more will help you save money on this year’s tax return.
Securities offered through LPL Financial, Member FINRA/SIPC, Investment advice offered through Independent Advisor Alliance, a registered investment advisor, Independent Advisor Alliance and Marzano Capital Group are separate entities from LPL Financial.