Tax Tips: Make These Changes Now to Save in 2020

Summary

WSJ Your Money Briefing: “Tax Tips: Make These Changes Now to Save in 2020”

Date: November 15, 2019
Host: J.R. Whalen
Guest: Laura Saunders, Wall Street Journal Tax Reporter

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Episode Overview

This episode tackles practical, actionable tax strategies consumers can implement before year-end to save money on their 2019 taxes (filed in early 2020). WSJ tax reporter Laura Saunders joins host J.R. Whalen to discuss key tips, explain changes from the recent tax overhaul, and demystify topics like withholding, deducting, retirement plans, charitable giving, and last-minute Congressional tax law activity.

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Key Discussion Points & Insights

Why Act Now On Taxes?

• Year-end deadline: Many tax actions must be completed by December 31; waiting until tax filing season in March or April is too late.
• Quote: "Now is the time to pay attention, because after December 31, there's very little that you can do to alter your tax bill." (Saunders, 02:42)

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Reviewing Your Withholding (03:01)

• After the tax code overhaul and altered paycheck withholding tables, many received “bad refund surprises” last year.
• Action: Use the improved IRS withholding calculator to make sure your paystub withholdings align with your tax liability.
• Quote: "I urge everybody to do that." (Saunders, 03:36)

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Standard Deduction vs. Itemizing (03:40)

• Impact of 2017 tax overhaul: Now, only about 10% of filers itemize vs. 30% before.
• Strategy: Consider “bunching” deductions (like charitable gifts) into some years to exceed the standard deduction and itemize only those years.
• Current standard deduction:
  • $12,200 for singles
  • $24,400 for married couples filing jointly (04:42)
• Quote: “Most people don't need to do it at all. And another thing is that you should check your strategy because maybe you almost have enough to itemize... Maybe you want to bunch your deductions and make them every two years.” (Saunders, 03:43)

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Retirement Account Moves (05:01)

• Contribution deadlines vary:
  • IRAs/Roth IRAs: Fund by April 15, 2020, for 2019
  • SEP IRA/Solo 401k: Can fund as late as Oct 15, 2020, but must have set up the account by Dec 31, 2019
• Quote: “See what all the rules are for both for funding it and for opening it.” (Saunders, 05:47)

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Estimated Taxes for Self-Employed (05:51)

• Obligation: Must pay 90% of taxes owed by year-end to avoid penalties.
• No more leniency: IRS waived some penalties for underpayment last year due to confusion but will not this time.
• Quote: “That's another good reason to check that withholding.” (Saunders, 06:05)

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Charitable Giving Strategies (06:22)

• Qualified charities: To deduct, only donate to qualified organizations.
• Timing & methods:
  • “Bunch” donations into select years for deduction
  • Use donor-advised funds for flexibility/future giving (get the deduction now, give money over future years)
  • Donate appreciated stock, not just cash, to possibly avoid capital gains tax and maximize deduction.
• Quote: “Donating appreciated stock held in a taxable account can be really, really a great benefit because you don't have to pay tax on this appreciated asset and you get a full deduction for the market value of it within certain limits.” (Saunders, 07:09)

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The “Kiddie Tax” (07:27)

• Applies to unearned income (e.g., investment income) given to people under 24; can be taxed at high rates due to the 2017 changes.
• Not for earned (job) income.
• Warning: Families gifting investments to children should review the rules carefully.

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Pending Congressional Tax Breaks (08:07)

• Congress often waits until late in the year (or after) to renew/extend temporary tax breaks.
• Expired yet potentially reinstated breaks include: tuition, medical expenses, mortgage debt forgiveness, energy efficiency, and some niche areas (e.g., racehorses).
• Quote: “We have tax breaks that expired in, I think, 2017, 2018, and 2019. Congress hasn't extended them yet. They may still extend them, but, you know, it might be at the last minute...” (Saunders, 08:13)

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Notable Quotes & Memorable Moments

• On last-minute planning:
  “After December 31, there's very little that you can do to alter your tax bill.”
  - Laura Saunders (02:42)

• On withholding ‘refund surprises’:
  “People got these bad surprises. Maybe they actually got a tax cut, but it looked like they didn't because they got a lower refund or no refund at all.”
  - Laura Saunders (03:07)

• On bunching charitable deductions:
  “Maybe you want to bunch your deductions and make them every two years instead of every year or every three years.”
  - Laura Saunders (03:55)

• On Congressional drama:
  “This is a perennial drama...”
  - Laura Saunders (08:13)

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Timestamps of Key Segments

• Why plan taxes before year-end: 02:42
• Checking and adjusting withholding: 03:01
• Itemize vs. standard deduction & bunching strategy: 03:40–04:34
• Retirement plan contribution deadlines: 05:01–05:47
• Estimated tax obligations for self-employed: 05:51–06:05
• Charitable giving strategies: 06:22–07:27
• The “kiddie tax”: 07:27–08:07
• Last-minute Congressional tax breaks: 08:07–08:53

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Summary Takeaways

• Don’t wait until tax time to address your 2019 taxes—act before December 31 for the biggest savings and best control over your bill.
• Double-check paycheck withholding to avoid surprises.
• Understand the interplay between the standard deduction and itemizing, and consider “bunching” deductions if you’re near the threshold.
• Max out retirement contributions when possible, but know the specific deadlines for setup and funding.
• Strategize charitable giving—consider donor-advised funds and donating appreciated stock.
• Be alert to the “kiddie tax” if giving investments or income to those under 24.
• Keep an eye on Congress for late changes to expiring tax breaks that might affect your filings.

For further reading and the latest updates, follow WSJ’s tax coverage.

Transcript

[A]

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[B]

Here's your Money briefing. I'm J.R. whalen at the Wall Street Journal in New York. There are things you can do right now to lower your tax bill next year. Tax reporter Laura Saunders will be with us in a moment to explain. First, some money and market news you should know the share of out of work Americans collecting unemployment benefits is at a historic low, in part because of tighter rules for those who can get them. In the past, most state unemployment programs conducted random checkups to see if unemployment recipients were actively looking for work. But after the last recession ended, some states began requiring benefit recipients to provide proof of their job search on a weekly or bi weekly basis. Last year, only about 30% of those without a job received unemployment benefits. The current strong labor market also means that many people quit their jobs voluntarily, which makes them ineligible for benefits in most cases. A top bank regulator wants to change regulations that could boost loans to low income borrowers. Next month, the Office of the Controller of the Currency will propose rules changes to the Community Reinvestment act that requires banks to serve borrowers of all income levels who live near their branches. In 2017, banks made $482 billion in such loans borrowing, which was about 4% of deposits. Under the proposed rule change, banks would have to ensure that loans aren't only made in areas defined as poorer neighborhoods, but that they go to lower income borrowers as well. The changes to community lending rules would affect about 1200 banks, including large institutions like JPMorgan Chase and Wells Fargo. Things get busy for everybody during the holiday season. Planning the holidays and travel, wrapping up your work projects. But making the right tax moves now to save you money next year should be near the top of your list. Wall Street Journal tax reporter Laura Saunders is here with some ideas. So Laura, you know, a lot of times we don't focus on taxes till March or April. But really, now's the time to run the numbers.

[C]

Absolutely. Now is the time to pay attention, because after December 31, there's very little that you can do to alter your tax bill. It mostly comes down to maybe putting some money in retirement accounts.

[B]

And there are a lot of ways you can manage your tax bill. And going over your tax withholding on your pay stub is really a good place to start.

[C]

Everybody should check their withholding this year. Check your withholding. Last year, a lot of people got bad refund surprises because they overhauled the tax code. That is, Congress overhauled the tax code, and also the Treasury Department changed the automatic paycheck withholding. And so people got these bad surprises. Maybe they actually got a tax cut, but it looked like they didn't because they got a lower refund or no refund at all. Maybe a surprise tax bill because of all the bad surprises. Last year, the IRS improved its withholding calculator, and so it's much easier to figure it out. And I urge everybody to do that.

[B]

And it's also important to figure out whether you should itemize your deductions.

[C]

Oh, absolutely. Until the overhaul of 2017, about 30% of taxpayers itemized their deductions on Schedule A. That's where you put in. You save receipts and you put in for your home mortgage interest in your state and local taxes and your charitable contributions and things like that. Now, before the overhaul, about 30% of Americans itemized. Now only about 10% do. Most people don't need to do it at all. And another thing is that you should check your strategy because maybe you almost have enough to itemize with those charitable deductions. Maybe you want to bunch your deductions and make them every two years instead of every year or every three years. So in those years, you can take itemized deductions, and the other years you can take the standard deduction.

[B]

And for the tax year 2019, when we will be filling out our tax forms in early 2020, the standard deduction has come up.

[C]

The standard deduction is $12,200 for singles and $24,400 for married couples filing jointly. So it almost doubled from before the overhaul.

[B]

And so it's good to take those numbers and measure it against what you would be getting if you were to itemize.

[C]

Exactly.

[B]

Okay. How should people evaluate the retirement savings plans?

[C]

There are some kinds of retirement plans like IRAS and Roth IRAS, where you have until April 15th to open them and fund them for the previous year. But it's not always the case. And so if you have a SEP IRA, you have actually till October 15. That goes on longer in other Cases like with, I think with a Solo 401k, you have till October 15, but the account had to be set up by December 31, the year before. So you would have till October 15 of 2020 to fund your Solo 401, but it had to be set up by December 31, 2019.

[B]

So review the kind of account you have and then see what the rules are.

[C]

See what all the rules are for both for funding it and for opening it.

[B]

Now, most filers must pay 90% of their income in self employ taxes by year end. The tax overhaul seemed to create confusion about that. And in the past, the IRS allowed for delays that might have resulted, but not anymore.

[C]

Well, what happened last year was that there was so much turmoil over refunds and taxes owed and not paying in 90% and things like that that they waived penalties, but they're not going to do that this year. So that's another good reason to check that withholding.

[B]

And this time of the year, a lot of people think about giving to charities and it's a good idea for them to strategize where they get the money from and how they donate.

[C]

You need to always give to qualified charities if you want a deduction, but it's important to know that there are different ways to do it. If you're going to use those bunching strategies that we talked about where you give more every two or three years in order to get a deduction, you might want to give it to the charity directly, but you might want to give it to a donor advised fund where you can build up an account. You get the the deduction right away, but you don't have to give the money away out of the account until you want to and it can be invested and grow tax free. That's one kind of strategy to use. Another strategy would be to donate appreciated stock rather than simply writing a check for cash to a charity. Donating appreciated stock held in a taxable account can be really, really a great benefit because you don't have to pay tax on this appreciated asset and you get a full deduction for the market value of it within certain limits.

[B]

And then there's the kiddie tax. Oh, yes, you got to be aware of that.

[C]

Yeah, well, not everybody does, but many people do. If you're going to give gifts or income or something like that to a young person who's under age 24, you have to be aware they could be taxed on it at a very high rate. Basically because of changes made in 2017, we've always had this kiddie tax, it's on unearned income, like from investments. It's not on, you know, people mowing lawns and scooping ice cream and things like that. So if you're thinking about giving some kind of asset to a young person who's 24 or under, you should get familiar with the kiddie tax.

[B]

And then I thought this was interesting. It's a good idea to keep an eye on how Congress might extend some tax breaks.

[C]

Oh, yes. This is a perennial drama. It comes up all the time. We have tax breaks that expired in, I think, 2017, 2018, and 2019. Congress hasn't extended them yet. They may still extend them, but, you know, it might be at the last minute, it might be early next year. So we'll report on it when it happens.

[B]

What sorts of things are on the list of those tax breaks?

[C]

Well, there's some tax breaks for tuition, for medical expenses, mortgage, debt forgiveness, all kinds of things. Oh, energy efficiency as well.

[B]

Okay. And so they may choose any one of those or several of those from that list to take on?

[C]

Well, they might, but there are dozens of provisions on the list. I think some of them have to do with racehorses and things like that.

[B]

All right, we'll keep an eye on Congress.

[C]

All right.

[B]

All right. That's Wall Street Journal text reporter Laura Saunders. Laura, thanks for coming on the show.

[C]

Thank you.

[B]

And that's your money briefing. I'm J.R. whelan in New York for the Wall Street Journal.

[A]

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