Smart year-end tax moves!

Two big events will happen before the end of the year:
Thanksgiving Day and “Tax strategy day”! Looking ahead is always a good idea when it comes to taxes. If you wait until next April to think about your taxes you will most likely miss out on opportunities to reduce, shift and defer your taxes. Consider the following tax moves to lower your 2019 tax bill:

1-    If you are employed: update your W4 and max out your 401k

Take the time to use the tax withholding calculator to gain a rough estimate of how much you might owe in taxes on your wages. If your income fluctuated from the prior year be sure to update your withholding tax payment before year-end by submitting
an updated W4 to your employer as soon as possible so you don’t face an underpayment penalty at the end of the year.

Read more on the payroll tax calculator - Check your wages withholding:

For tax year 2019, you can contribute up to
$19,000 to your 401K. If you are able to contribute a little more money from your paycheck for the last few months of the year, contact your employer to make addition contributions - these contributions will lower your tax bill.
Read more on retirement plan tax deductions:

2-    If you are a business owner – build your basis to deduct business losses

If you are a member in a pass-through entity
(LLC, S-Corporation, Partnership), your business loss will only be deductible if it is lower than your basis. The basis is the amount you invested in the company. It also includes any funds loaned to the business.  Therefore, if you estimate your business loss to be higher than your basis, consider making a new loan to your business or restructuring an existing third party loan that you have personally guaranteed in your name so that you are jointly liable for the debt and increase your basis in the company.

3-    If your own an investment portfolio (stock, bonds, brokerage accounts)

a/ Hold your investment at least 1 year

Timing can have a dramatic impact on the tax liability of your investment activities. Your long-term capital gain tax rate might be as much as 20 points lower than your ordinary-income rate. The long-term gain rate applies to investments held for more than 12 months. Holding on to an investment until you’ve owned it more than a year may help substantially cut tax on any gain.

To read more on long term and short term capital gain tax rates:

b/ Harvest losses

Selling investments such as stocks and mutual funds to realize losses will enable you to use those losses to offset taxable gains you have realized during the year. Losses offset gains dollar for dollar.

c/ Watch out for “wash sales”

You generally cannot deduct losses if you buy the same security within 30 days before or after the sale of the security that created the loss. So, make sure you wait at least 31 days to re-invest.

d/ Pay estimated taxes

Mutual funds are required to pay out to their shareholders gains realized from sale of stock or bonds during the year. If you own the fund in a taxable account (i.e. not an IRA), you will be taxed on these distributions. If you have mutual fund and anticipate distributions, consider making estimated tax payment before the end of the year.

To read more on estimated taxes:

4-    If you reside in several states / countries during the year: Count your days

For individuals who split their time in two different states / countries throughout the year, now is an excellent time to consider where you may be taxed as a resident for tax year 2019. Track the number of days you are spending in each jurisdiction. Generally, if you reside in a jurisdiction for
183 days or more, that jurisdiction will assert residency and the ability to tax all your income.  If you are close to the 183 mark, consider adjusting your travel plans for the few weeks left in 2019.

5-     If you own real estate

If you are considering selling your real estate property, it is possible to divest yourself of appreciated real estate wile deferring tax liability. Here are a couple of deferral strategies to consider:

a/ Consider an installment sale
An installment sale allows you to defer the capital gain by spreading it over several years as you receive the proceeds.  

b/ Consider a 1031 exchange
This transaction – also known as a “like-kind” exchange - allows you to exchange one real estate investment property for another and defer paying tax on any gain until you sell the replacement property.

Read more on like-kind exchanges –

6-     If you are a non resident : check your ITIN for its expiration date

An ITIN is a tax identification number used by taxpayers who do not qualify for a social security number (usually non-residents who hold an investment in the US).   
Every Year the Internal Revenue Service (IRS) recycles ITIN. This year is no exception and 2 million ITIN numbers are about to expire.
The numbers that expired in 2016/2017/2018 are the ones with middle digits
between 70 and 82.
In 2019, the numbers that expire will be the ones with middle digit
between 83 and 87.
To avoid tax refund delays, contact your tax professional before the end of the year to renew your ITIN.

To know more about an ITIN:
To request an application or a renewal of your ITIN:

Finally, get organized and prepare your tax documents now!

If you want to make sure you don’t forget any personal or business tax deduction, review and organize your papers:

a/ file your papers and discard the one you no longer need
Read more on how long to keep documents -

b/ Review your bank and credit card statements for any items that relate to your professional activity (such as professional expenses not reimbursed by your employer, or if you are self employed, business expenses that you paid out of pocket with a personal account)
Read more on gathering your tax documents –tax organizer -

It is not too late to make your year-end tax moves, contact
Karine Bauer, EA at Kbauer Financials LLC now for the smart tax moves you should make customized to your tax situation!  As always, the views contained in this article are not tax or legal advice and are not a substitute for consulting with a tax professional. Karine Bauer, EA is an Enrolled Agent licensed by the Treasury Department with unlimited rights to represent taxpayers before the Internal Revenue Service. She is an experienced tax professional with more than 20 years of international experience.

Bear in mind the date of this article as tax laws evolve over time.

Published on 11/09/2019