Have You Checked Off These 7 Potential Tax Savings Ideas Before Year-End?

By Allen Ostrofe | Published in The Union | Download the PDF

Elizabeth and Mark recently called from Los Gatos, California, and had left a voicemail that had a tone of anxiety. The year had gone by so quickly they weren’t certain whether their year-end financial and tax planning was adequate. Elizabeth is self-employed as an independent contractor, and Mark is employed as a software engineer in Silicon Valley. Their earnings place them squarely in one of the higher tax brackets. They called wondering what tools are still available to use before December 31 of this year to save federal and/or state taxes. I suggested they consider the following seven ideas—some of these may apply to you, as well.

1. Charitable donations. Mark and Elizabeth need to focus more on available write-offs. They could check that they can still itemize under the new tax laws. Charitable non-profit organizations will gladly take their in-kind donations or cash before year-end. They need to make certain that they receive and retain detailed receipts, even photos, of goods they have donated.  Make certain that the organization is a qualified 501(c)(3) non-profit. For larger items such as income-producing assets or parcels of land, they should consider a charitable remainder trust or a conservation easement with the aid of their Certified Financial Planner (CFP®) and estate planning attorney.

2. Quarterly estimates. Nothing is more frustrating than to have major financial surprises next March or April. Mark and Elizabeth should provide year-to-date income information to their tax preparer to confirm they are current with their quarterly estimated payments. In some cases, their remaining estimated payments (both federal and state) may be able to be reduced based upon this year’s updated income and expense information.

3. Retirement plan contributions. Mark, being an employee, should check with his CFP® to see whether he might qualify to max out his contributions to his 401(k), through salary deferrals, before year-end. For Elizabeth, being self-employed, it is not too late to establish a SEP IRA retirement plan. Both Mark and Elizabeth could potentially reduce their taxable income dollar-for-dollar with any contributions made before December 31. Elizabeth can even make contributions to her SEP IRA up until they file their tax return.  They should also check with their CFP® or tax preparer about whether they can additionally make a tax-deductible IRA contribution or even Roth IRA contribution.

4. Get your personal finances organized now. Now is the best time for Mark and Elizabeth to start collecting all of their tax-related paperwork such as income-to-date, expenses, and donations. They should make their tax preparer aware of any financial changes they have had in comparison to tax year 2018. If they are so inclined, they should create a spreadsheet to track tax-relevant data. This helps in avoiding giving their tax preparer “a box of paperwork” in March or April. The more streamlined they keep their paperwork, the lower their tax preparation fee will likely be.

5. Organize your business finances now. For Elizabeth, the business owner: she should consider using, or updating, a spreadsheet or software such as Quickbooks. Make your tax preparer aware of your year-to-date gross income, capital expenses, and equipment purchases, especially where there have been significant changes from the previous year.  Have there been any changes in your business status, e.g., changing from sole proprietor to a corporation?

6. Check your tax withholdings. For Mark, who is an employee: he should check and report to their tax preparer all of his year-to-date federal and state tax withholdings to avoid potential unwanted surprises next March or April.  This could potentially provide the tax preparer enough time to make changes in withholding prior to year-end.

7. Investment gains and losses.  Working with their CFP®, Mark and Elizabeth can take advantage of any losses that are currently unrealized within their non-retirement plan investment accounts.  Realized capital losses can be used to offset any capital gains as well as up to $3,000 of ordinary income.  Reviewing expected year-end capital gains distributions from mutual funds and ETF’s is another important step for Mark and Elizabeth to pursue their goal of no unwanted tax surprises.

If you feel that the tax year 2019 has crept up on you too quickly, and you feel uncertain or frustrated, take heart! This is a great time of year, before the holidays, to get your financial life under control, and aim to save paying unnecessary taxes to boot!

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This information is not intended to be a substitute for specific individualized tax advice.  We suggest that you discuss your specific tax issues with a qualified tax advisor.

Allen Ostrofe, MBA, CFP®, is President Emeritus of Ostrofe Financial Consultants, Inc., with clients in 32 states and is a registered Representative with, and Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Ostrofe Financial Consultants, Inc., a Registered Investment Advisor and separate entity from LPL Financial. For questions or suggestions, visit ostrofefinancial.com. Branch address: 420 Sierra College Drive, Suite 200, Grass Valley.

Roth IRA or Traditional IRA: Which is Better?

By Frederick “Rick” Fisher, MS, CFP®

Download the PDF or read this article on The Union

Over the years, we have had many clients ask, “Which should I invest in, a Roth IRA or traditional IRA?” They both are excellent retirement vehicles and generally can be invested in almost any asset. To illustrate the differences and determine which one is more appropriate, we will take the case of hypothetical clients, Jim & Sally Jones, and Roger Stevens.  

Jim and Sally are a young couple starting out. They want to get an early start on retirement savings. Neither of their employers offer a retirement plan, so both are eligible for the tax deduction from a traditional IRA. 

In order to determine which IRA is better for them, we needed to know their income and tax bracket. Since they are just starting out, their salaries are relatively low, and taxes are of secondary concern. In their case, a Roth IRA may be the better way to go, even though a Roth IRA contribution is not tax-deductible, while a traditional IRA is tax-deductible. The major benefit of a Roth IRA, however, is that under current law you are not taxed on distributions in retirement. Therefore, when they retire in 30 years, they will be able to start drawing on this account without an effect on their income tax. Assuming that income taxes will increase over time and that their income will be higher at retirement, this may be a significant benefit. 

 While the traditional IRA and Roth IRA both grow tax deferred, the main difference between the two is that you get the tax benefit upon contribution for the traditional IRA, and upon distribution for the Roth IRA.  

Also, the contribution limits are the same. For 2019, the max you can contribute is $6,000 for those under 50 years old and $7,000 if you are 50 or over. There are income limits on Roth IRA contributions.  For single filers the income limit is $137k Modified Adjusted Gross Income (MAGI), and for joint filers that increases to $203k. 

For the Jones, this was not a concern. For Roger Stevens, it was. 

Roger is 42 and investing in a new business that expects to make him between $120k and $150k this year. He likes the idea of tax-free income, because he has significant money in a 401(k), which like traditional IRAs, will be taxed upon distribution. He would like to have some flexibility regarding the tax treatment of retirement income.  

We advised him to wait to determine his taxable income for this year and see if he qualifies for the Roth IRA.  If not, he could still add to his traditional IRA, along with other plan options that are available.  Since both plans allow prior year contributions up to April 15 of the following year, that buys Roger some time to make a decision. 

Another advantage of the Roth IRA that both the Jones and Roger liked was that they are not forced to take money from the Roth IRA at 70½. They are forced, however, to take from a traditional IRA and most other retirement plans.  

With this information, the Jones started Roth IRAs for themselves. Roger decided to wait to see where his MAGI for 2019 will be. If possible, he would then open a Roth IRA. If not, he would add to his existing traditional IRA. 

Should you want advice on how to best allocate your tax advantaged retirement dollars, call our office for a complementary review.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax.  Future tax laws can change at any time and may impact the benefits of Roth IRAs.  Their tax treatment may change. Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.  This is a hypothetical situation based on real life examples.  Names and circumstances have been changed.  To determine which investments or strategies may be appropriate for you, consult your financial advisor prior to investing.

Frederick Fisher is a Registered Representative with, and Securities offered through LPL Financial, Member FINRA/SIPC.  Investment advice offered through Ostrofe Financial Consultants, Inc., a Registered Investment Advisor and separate entity from LPL Financial.   

For questions or suggestions, contact Frederick at (530) 273-4425, or frederick.fisher@lpl.com, or visit ostrofefinancial.com.  Branch address: 420 Sierra College Drive, Suite 200, Grass Valley.