End-Of-Year Tax Planning Tips And What You Should Know For 2020

By Gene M. Carlino December 5, 2019Estate & Trust Law

As we approach the end of 2019, taxpayers need to be mindful to position themselves to minimize their state and federal income tax liability, which is due by April 15 of 2020.This is accomplished by accelerating deductions and deferring income. To accelerate deductions, an individual taxpayer should make sure all property tax payments for the entire calendar year up to the $10,000 limit are completed before December 31st, even if your city or town allows you to pay in installments into the next year. Another option is to make an extra mortgage payment and deduct the mortgage interest. For business taxpayers, consider purchasing a new piece of equipment or other capital asset. Completing that purchase now may qualify the business for a deduction of 100% of the purchase price if the asset is placed in service this year. On the income deferral side, you may want to avoid trying to collect delinquent accounts until January to push some income into next year or ask for smaller up-front payments for projects that span this year and next. Also, consider sending out December invoices after the first of the year.

If you have established an irrevocable trust that is subject to income tax, year-end tax planning is particularly important. This type of trust reaches the highest rates of income tax on earned income at very low levels of income. Distributing the income out of the trust to a beneficiary will create a deduction at the trust level and cause the income to be taxed at the beneficiary’s level where it is likely to be taxed at a lower rate. If you miss the December 31st deadline, there is a safe harbor rule known as the “65-day rule.” This rule provides that distributions from a trust within 65 days after the close of the calendar year can be treated as having been made in the prior year. Trustees who use this method may get flak from their beneficiaries who have already filed their return as the beneficiaries will now have to amend their returns.

The 2018 Tax Cut and Jobs Act brought us something known as the Opportunity Zone. The new law is designed to encouraged investment in specific designated areas of each state in exchange for a bundle of tax benefits. Simply put, a taxpayer can sell a capital asset such as stock held for investment or a rental property and if the proceeds are invested directly or indirectly through a fund in a property located within an opportunity zone within 180 days, the taxpayer can defer the recognition of the gain on the asset sold for seven years. Under the law, if the investment in the opportunity zone is completed before January 1, 2020, the taxpayer will not have to pay any tax on 15% of the deferred capital gain in year seven.

Heading Into 2020
The IRS has recently issued new proposed life expectancy tables. These tables were last revised in 2002. As you might expect, the new tables recognize that people are now living longer. This will translate into lowering the amount that must be distributed each year from your IRA and reported as income. The bad news is the proposed regulations are not likely to be final and effective until 2021.

Many individuals have decided to put off estate tax planning given what they consider are extraordinarily high exemption levels. For 2019, an individual can pass on $11,400,000.00 without incurring an estate tax and a married couple can pass on twice that much. The law sunsets on January 1, 2026 and the exemption returns to the $5,000,000.00 level (adjusted for inflation). Clients currently sitting below the $5.0 million dollar mark should not be lulled into complacency by the $11.4 million dollar exemption level. It is very reasonable to assume that assets that are slightly below the lower threshold will appreciate in value beyond that mark by the time the law sunsets in 2026. This will expose their estates to an estate tax at 40%. The IRS has recently issued guidance that those that do plan now can do so without concern that they will lose the tax benefit of the higher exclusion level once it decreases after 2025.

If you have questions about the information presented here or need assistance to consider the best tax strategies for you, your family or your business or about estate and trust planning, please contact PLDO Partner Gene M. Carlino in Rhode Island at 401-824-5100 or in our Florida office at 561-362-2030 or email gcarlino@pldolaw.com.




Disclaimer: This blog post is for informational purposes only. This blog is not legal advice and you should not use or rely on it as such. By reading this blog or our website, no attorney-client relationship is created. We do not provide legal advice to anyone except clients of the firm who have formally engaged us in writing to do so. This blog post may be considered attorney advertising in certain jurisdictions. The jurisdictions in which we practice license lawyers in the general practice of law, but do not license or certify any lawyer as an expert or specialist in any field of practice.

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Gene M. Carlino is a Partner with Pannone Lopes Devereaux & O'Gara LLC. He is a highly respected attorney with more than 25 years of experience in all areas of estate and tax planning and administration, Medicaid planning, probate administration and trust litigation. His practice includes advising and advocating for clients in all matters involving federal and state taxation, including representing individuals before the Internal Revenue Service in contested assessments during the examination phase, before the Appeals Division, and at trial in the United States Tax Court, the United States Court of Federal Claims, and the Federal District Court. Prior to joining the firm, he was the founder and successful business owner of Carlino Law Associates, PC since 1999. Attorney Carlino is a prominent member of the legal community, and was honored by his peers and judges with the AV Preeminent rating from Martindale Hubbell, which is the highest rating based on both legal ability and ethics. He has vast experience in all phases of the tax collection process, including negotiating installment agreements, Offers in Compromise, penalty abatement requests if reasonable cause exists and advising clients on how to properly structure their affairs within the bounds of the law, so as to better position clients for a favorable settlement and to avoid unnecessary exposure to collection procedures. In addition, he advises clients in all matters of federal income tax planning, including structuring and implementing like-kind exchanges from routine to a highly sophisticated nature, and advising corporate taxpayers and shareholders in connection with tax-free reorganizations. In his estate and trust planning and administration practice, he counsels clients in a wide range of areas that include funded revocable trusts, funded irrevocable trusts, funded life insurance trusts, planning for families with a noncitizen spouse and for families with special needs children or beneficiaries, grantor retained annuity trusts, sales to irrevocable trusts using a conventional promissory note and/or using a self-canceling installment note, and domestic asset protection trusts. In addition, Attorney Carlino has significant experience in the practice of Elder Law, including advising individuals in all phases of the Medicaid planning and the eligibility process, assisting in designing and implementing Medicaid plans and handling appeals through the state administrative hearing process. Attorney Carlino earned his J.D. from Boston University School of Law, his LLM in Taxation from New York University School of Law and a B.S. in Accountancy from Providence College, magna cum laude. He is licensed to practice in Rhode Island, Massachusetts and Florida and also admitted to the United States Tax Court, United States Court of Federal Claims, the Federal District Court of Rhode Island and the United States District Court for  the Southern District of Florida. He is also licensed by the National Football League Player's Associations as a contract advisor.

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