Broker Check

Year End Tax Moves

September 30, 2019

Market Summary

US stocks were able to weather fears of an economic slowdown and the continued trade war with China to end the quarter with a 0.8% gain on the Wilshire 5000 Index.  During the quarter, the Federal Reserve cut its lending rate twice, by 0.25% each time.  The 50-bps reduction in short-term rates helped to provide support for US stocks. 

Fears that the trade issues between the US and China would create a global economic slowdown drove headlines throughout the quarter.  The yield curve inverted in August (2yr/10yr).  No one knows what’s happening with Brexit.  Despite all of these worries, the unemployment rate sits near historic lows and the stock market is up 19.6% through September 30. 

The Treasury yield curve remains exceptionally flat, especially at the front end.  The 10-year Treasury ended the quarter with a yield of 1.7%.  The Barclay’s Aggregate Index outperformed stocks for the quarter, returning 2.3% and is up 8.5% for the year. 

Below is a table highlighting various market index returns over the past 3, 9, and 36 months:




 The end of the year often brings questions on how to reduce taxes.  I expect that 2019 will be no different and we welcome all questions and will continue to focus our efforts on helping clients plan for their family and business.  This tax year brings the second year that taxpayers will be subject to the Tax Cuts and Jobs Act.  To confuse matters more, more changes may come from a tax package that some in Congress are hoping to pass by the end of the year. 

 Be sure to speak with your tax advisor regarding any of the following strategies:

Itemizing vs Standard Deduction

The Tax Cuts and Jobs Act dramatically increased the number of taxpayers that take the standard deduction.  At the same time, it greatly increased the standard deduction to $24,400 for married filing joint and $12,200 for single filing, in 2019.  A $10,000 cap was placed on deducting state and local income tax (SALT), including property taxes.  

 In Maryland, if you take the standard deduction at the federal level, you must take the standard deduction on the state return.  While this may reduce your federal liability, it may result in an increase to your Maryland income tax liability.  It is important to take a look at your total liability of taking the standard deduction versus itemizing your deductions. 

Charitable Contributions

Gifts to qualified 501(c)3 institutions are still tax deductible if you itemize.  If you take the standard deduction, the gift itself may not be deducted from your taxable income, but you can still take advantage of donating appreciated stock vs giving cash. 

For taxpayers that are on the cusp of itemizing, there is another strategy for you.  By “bunching” a few years of gifts into a single year, you can give the same amount to charities and maximize your tax benefit.  A donor advised fund (DAF) is a vehicle that is often used to bunch gifts.  By gifting multiple years of donations to a DAF, taxpayers can take the full deduction of their gift in that year then use the fund to give to the charities over the subsequent years.  This allows for you to continue to give to charities without disrupting your normal giving schedule. 

 If you are subject to required minimum distributions (RMD’s) from your IRA, you may have another option.  Instead of taking your RMD in cash then giving to charity throughout the year, you can give directly from your IRA to the charity as a Qualified Charitable Distribution (QCD).  Be sure to work with your advisor to ensure that this is completed correctly.  The advantage of a QCD is that the distribution is not recognized as income on your tax return but still counts toward your RMD!  This strategy may be impactful even if you itemize because by not having to recognize the distribution as income, you may reduce your AGI thus lowering the threshold for deducting medical expenses. 

Harvest Taxable Losses

The end of the year is the most common time for investors to look for capital losses within their taxable investment portfolios.  While it is generally a good idea to do this year-round, investors typically think of it most often at the end of the year.  These capital losses can be used to offset capital gains that you may have realized throughout the year.  If your capital losses are greater than your capital gains, you can use up to $3,000 to reduce ordinary income each year (if married filing joint).  Losses above and beyond this limit can be carried over to the following tax year. 

 Married couples filing jointly that earn less than $78,750 ($39,375 for single filers) pay a capital gains rate of 0%, so it is important to be aware of the rate you’re paying before you take losses. 

Maximize Retirement Accounts

By increasing your contribution to your 401(k), IRA, or other retirement plan to the maximum allowable amount, you could lower your taxable income and increase your retirement savings at the same time.  In 2019, you can defer a maximum of $19,000 into your 401(k).  If you are 50 or older you are eligible for “catch up” contributions.  This allows you to defer an additional $6,000 in 401(k) plans and an additional $1,000 for an IRA. 

 If you are self-employed, you may have multiple options available to you depending on your business structure and number of employees.  It is important to work with your advisor to determine which plan is best for your specific circumstances. 

Don’t Forget About Your HSA

If you have a high-deductible healthcare plan, you may be eligible to open a Health Saving Account (HSA).  It is important to remember that balances in your HSA can rollover from one year to the next and do not have to be used.  You get an income tax deduction for the deposit and withdrawals for qualified medical expenses are not taxed, even on the growth of the account.  Most HSA accounts have an option to invest a portion of the funds.  If your out-of-pocket expenses are low or you’re not using the funds in the HSA for reimbursement, investing the funds could add long-term growth to your account.  After you reach 59 ½ you can withdraw the funds for non-medical expenses penalty free and pay ordinary income tax on the withdrawal.  This makes this account an excellent opportunity for employees who are maxing out their other retirement accounts to save more for retirement. 

Take Advantage of QBI

Income from pass-through entities such as sole proprietorships, LLC’s, and S-corps may be eligible for a qualified business income (QBI) deduction, also known as Section 199A.  This deduction allows eligible taxpayers to deduct up to 20% of their QBI.  Real estate investment trust dividends and qualified publicly traded partnership income may also be eligible for the deduction.  There are some income limitations and QBI is the net amount of income, so be sure to work with your advisor on planning items to maximize your deduction.

Accelerate Income

There are circumstances when it may be a good idea to pay more taxes today by accelerating income rather than paying them later.  We have some clients that are in the unique position of being in a very low tax bracket today, but when RMD’s kick in we know they will be in a much higher tax bracket.  In each

individual circumstance, it may be advantageous to recognize income by converting an IRA to a ROTH IRA and pay taxes now so that distributions from the ROTH IRA will be income tax free upon withdrawal in the future. 


These are just a few high-level ideas to consider before year-end.  If you need help applying the above to your situation, give us a call.



JR Geld, CFA, CFP®          


Philip E. Huber, Jr, CPA, CFP®


HWA Financial Group

3448 Ellicott Center Dr.

Suite 101

Ellicott City, MD  21043