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End of Year Tax Planning Part 1

Tommy Blackburn, CFP®, CPA, PFS & John Mason, CFP®


2019 is quickly coming to an end.  As the holidays and end of year approaches, it is a good time to review the tax planning components of your financial plan.  

Estimate Federal and State tax liability and ensure that you are properly paid in:


The recent tax law took effect in 2018 and wreaked havoc for many taxpayers.  Taxpayers who traditionally received substantial refunds, and who often counted on these refunds as a type of savings account, were distraught when they filed their 2018 tax returns. These same people quickly realized that the refund was either substantially smaller than prior years or that they actually owed for the first time. The majority of our clients paid LESS in federal taxes in 2018 than they did in 2017. However, the amount paid in was severely reduced due to the automatic withholding adjustments that occurred. The under withholding was so severe that the IRS announced that it would only impose a penalty on individuals for underpayment of estimated taxes if less than 80% was withheld during tax year 2018. The penalty normally applies if less than 90% of taxes were withheld.

One year later, taxpayers should have made the adjustment to account for the withholding adjustments.  It is unlikely that the IRS will provide the same relief, 80% threshold that they did for 2018 filings.


Review line 15, total tax, on your 2018 IRS Form 1040. Were there any substantial changes in 2019 that would cause this number to be drastically different? For example, a child who is now age 17, a child who is about to attend college, birth or adoption of a child, or substantial medical expenses could have a substantial impact on the amount of tax due or total tax.  Use this number to help estimate 2019 liability and adjust withholding or make an estimated tax payment to avoid penalties.

Line 22, Amount You Owe, is also helpful with end of year tax planning. Assuming no significant changes in 2019, line 22 is a good ball park for the additional amount you should have withheld before the end of the year.

Required Minimum Distributions


Required Minimum Distributions (RMDs) are required for taxpayers who are age 70 ½ and have a retirement account (IRA, 401(k), Thrift Savings Plan, 403(b), and etc.).  Required minimum distributions are forced distributions from retirement accounts that generally begin the year a taxpayer reaches age 70 ½. In addition, taxpayers with inherited retirement accounts and inherited annuities are also subject to required minimum distribution rules. In either scenario, the RMD amount is based on the prior year December 31 account value and the age factor from the appropriate IRS life expectancy table.

Uniform life expectancy table

Single Life expectancy table

Joint Life and Last Survivor Expectancy Table

If you turned 70 ½ in 2019, your first RMD must be made by April 1, 2020.  Although the first RMD can be deferred to 2020, you will still have an RMD for 2020 that must be withdrawn by December 31, 2020. Deferring the first RMD until 2020 will result in TWO mandatory distributions in 2020.  Please note that delaying an RMD into the following year is only permitted the year you become RMD age.   

While you may not need the funds or wish to not incur the additional taxable income, RMD’s are mandatory.  The penalty for missing an RMD is steep, 50% of the missed amount!


Distribute your RMD before mid- December.  

Consider a Qualified Charitable Distribution

Estimate your 2019 Federal Tax Liability and determine the amount that should be withheld.  If you are at risk of under withholding and IRS penalties, consider using your RMD to meet withholding requirements by having an increased amount of federal taxes withheld on the distribution.  If needed, 100% of the distribution can be withheld for both Federal and State taxes (don’t forget about state taxes too!).

Qualified Charitable Distributions


Qualified Charitable Distributions (QCD) is a charitable planning tool available to taxpayers who are 70 ½ or older and have an IRA account with an RMD requirement. QCDs can be made from both IRA and inherited IRA accounts.  Although inherited IRA accounts may have an RMD requirement prior to age 70 ½, the taxpayer can only use the QCD strategy if age 70 ½ or older.

Qualified charitable distributions are distributions from an IRA account that are sent directly to a qualified charity.  These distributions satisfy the RMD requirement and the charitable giving goal.  In addition, the distribution is not counted as income!  Because it is not counted as income, there is no need (nor is it allowed) to deduct the charitable donation on IRS Schedule A.  This is more important now than ever because so few people are itemizing and thus not receiving any financial benefit for their charitable contributions.  QCDs are limited to $100,000 per year.  The QCD can be less than or more than the calculated required minimum distribution.   

Additional benefits of a QCD

  1. Potentially less Social Security income subject to federal taxes
  2. Lower threshold for schedule A medical expense deduction
  3. Help avoid increased Medicare Part B and D monthly premiums because of a lower adjusted gross income.


Alert your financial planner or financial planning team if charitably inclined.  It is harder to identify those who are charitable because most tax returns do not include a Schedule A due to the increased Standard Deduction.

Reduce monthly charitable donations to a lower amount, or $0, and execute a QCD early in 2020

Although taxpayers have the ability to execute numerous QCDs, identify a few charities per year and alternate if needed.

Clients requesting A QCD for 2019 should initiate the request by 12/06/2019.

Financial planning is not a product, it’s a process.  The tax planning component must be coordinated with the overall financial plan and work alongside other financial planning actions to help you achieve your goals and objectives.  Knowing these rules, and how to take advantage of them, is what we do at Mason & Associates every day.

Interested in discussing further with Mason & Associates?  Reach out to speak to one of our advisors.