Tax Savings Options for 2019

Charitable Contributions 

• Due to the $10,000 cap on the state and local tax deduction and the removal of miscellaneous itemized deductions, sufficient charitable contributions are now more important than ever for bulking up itemized deductions.

• A donor-advised fund could be set up, which would allow the taxpayer to take a bulk-deduction for charitable contributions that will be made out of the fund over a number of years. 

  • For instance, you could put $100,000 in a donor-advised fund and take the full charitable contribution deduction in the year you contribute and then donate $10,000/year to the charities of your choice over the next 10 years. 

Profit Sharing / Employee Bonuses 

• Profit sharing of up to 25% of wages and/or employee bonuses can be used to lower the corporation’s net income for the year.

• Profit sharing, when combined with another defined-contribution plan (such as a 401(k)), can allow the taxpayer to put as much as $56,000 per year ($62,000 with catch-up) into tax-deferred retirement plans.

• Deadline to set up the plan is December 31. 

Defined-Benefit Plan 

• Defined-benefit plans allow contributions of up to the lower of $225,000/per employee or 100% of average compensation for the three consecutive years of highest compensation.

• Requires an actuarial evaluation to determine the maximum allowed contribution.

• Deadline to set up the plan in December 31. 

HSA Contributions 

• If the taxpayer is covered under a high deductible health plan they can make tax-deductible contributions to an HSA plan that can be used for qualifying medical expenses.

• NOTE – The deduction is on the personal tax side, not the corporate side. Any employer contributions to a greater-than-2% shareholder’s HSA cannot be expensed on the corporate return. 

Fixed Asset Purchases 

• Any fixed assets (equipment, furniture, etc.) purchased and placed in service before the end of the year are eligible for 100% Bonus Depreciation or Section 179 deduction. This includes Qualified Improvement Property and certain types of company vehicles (luxury vehicles have additional depreciation limitations.

• The purchased item does not need to be new, purchases of used items are eligible as well (they just need to be “new to you”). 

Additional Payroll (Adding children and/or spouses) 

• Adding your children to the payroll will reduce your taxable business income.

• Minor children with earned income can also begin contributing to their own IRA. 

  • Each child can contribute a maximum of $6,000 to either a traditional or Roth IRA.

• For 2019 the maximum amount of earned income that a dependent child can have without being required to file a tax return is $12,200. (Note – if they also have unearned income they must still file a return if their unearned income is over $1,050). 

  • Example: If the dependent child does not have any unearned and they contribute $6,000 to a traditional IRA, they can have up to $18,000 of earned income before they would owe any Federal taxes (Ohio taxes will still be applicable). 

    • NOTE – If the child contributes to a Roth IRA the tax-free income limit is $12,000.