How to Save on Your 2019 Taxes

Investors know that a great portfolio requires strategic planning and consideration of economic factors that would impact your investments. So, it’s not unusual to think about how 2019 tax changes could affect your investment decisions as you look ahead to preparing to file your 2019 taxes.

Here are among the things you should be thinking about before the end of the year: 

1. Contribute the maximum to your IRA

You can contribute as much as $6,000 to an IRA, up $500 from 2018. If you’re age 50 or older, you can make an additional $1,000 contribution.

2. Defer some income if you can

You only pay taxes on the income you receive during a given year. So, you can put off paying some taxes by deferring some income. While this may be difficult for salaried employees, consider deferring some income until next year. Perhaps you can defer your annual bonus, for instance. If you’re self-employed, it may be easier to delay payments until 2020. You may want to consult your accountant, however, because this only makes sense if you’re going to stay in the same or lower tax bracket next year.

3. Think about more deductions you can take

Here are some itemized deductions worth paying attention to:

• Make your charitable donations by December 31, 2019 because charitable donations are deductible, and the cash donation limit is 60% of adjusted gross income (AGI).

• State and local income taxes, property taxes, and real estate taxes are capped at $10,000. 

• The mortgage interest deduction is a tax deduction for mortgage interest paid on the first $1 million of mortgage debt. Homeowners who bought houses after Dec. 15, 2017, can deduct interest on the first $750,000 of the mortgage.

• Medical expenses more than 10% of adjusted gross income (AGI) can be deducted.

• No miscellaneous itemized deductions are allowed.

4. Contribute more to your flexible spending account  (FSAs)

If your employer offers a health care FSA, take advantage of the increase in contribution limits. Your employer dictates what you can contribute, but the IRS maximum for 2019 is $2,700. Contribution limits for dependent care FSAs, remains at $2,500 for individuals and $5,000 for married couples or individual heads of household.

5. Consider “loss harvesting”

You may want to consider selling some stocks in your portfolio to realize losses, which can then offset any capital gains to reduce your overall tax burden. Losses will offset gains dollar for dollar so this could be a winning strategy for you.

6. Save on taxes with your health savings account (HSA)

The maximum amount you can contribute to an HSA for 2019 is $3,500 for an individual and $7,000 for a family. If you’re age 55 or over, you can contribute an extra $1,000.

7. You may qualify for the child tax credit 

Kids are great, especially since the child tax credit could even be paid back as a tax refund. And, did you know that tax credits reduce your taxable income?

You may be eligible for a tax credit of up to $2,000 per dependent child age 16 and younger, if your household income is below $200,000 for single filers or $400,000 for joint filers. If your child is 17–24, you may still qualify for a credit of up to $500.

8. Beware the “kiddie tax”

A child’s investment income above $2,200 is taxed at the same rate as trusts and estates, which are usually higher than individual tax rates, so you may want to stay under that amount.

9. Alternative minimum tax (AMT) exemption could impact investment decisions

For 2019, the AMT exemptions are $71,700 for single filers, $111,700 for married taxpayers filing jointly, and $55,850 for married taxpayers filing separately. The phase-out thresholds are $1,020,600 for married taxpayers filing a joint return and $510,300 for all other taxpayers. 

10. Give More, Save More on Estate Taxes

The unified estate and gift tax exemption is now $11.4 million for 2019. It’s higher than last year, but will expire at the end of 2025.

The gift tax exemption, which allows you to “gift” investments to family members, remains at $15,000 per recipient.

Big Changes Ahead for Saving for Retirement

Who says Washington can’t agree on anything?

With bipartisan support, Congress just passed and the President signed the SECURE Act, legislation that provides significant changes and incentives to further help Americans save for retirement. Most of the provisions will take effect on January 1, 2020.

So, what does this mean for your IRA and 401(k)? Among its major features, the SECURE Act:

• Removes the maximum age limit for making contributions to traditional individual retirement accounts (right now, that’s 70½).

• Makes it easier for small businesses to band together to offer 401(k) plans and offers tax credits to those firms that do.

• Raises the age to 72, up from 70½, when people need to start taking required minimum distributions from certain retirement accounts.

• Encourages annuities in 401(k) plans by eliminating companies’ fear of legal liability if the annuity provider fails or otherwise doesn’t deliver.

• Allows for younger investors to use up to $10,000 of 529 plans to pay off student debt

• Allows small businesses to participate in multi-employer 401(k) plans and receive tax credits for implementing automatic enrollment

• Lets part-time workers become eligible for retirement benefits, depending on how many hours they’ve worked in a given year.

With many Americans falling woefully short in saving for retirement, these new measures will hopefully encourage people to save more in the years ahead.

What are you waiting for? Check out Firstrade’s retirement accounts.

The Tax Benefits of Custodial Accounts For Your Kids

To start saving for your child’s education or building that nest egg with a Firstrade custodial account. Firstrade makes it easy to open and manage with no custodian income limits or minimum deposit requirements.

What exactly is a custodial account you ask?

It’s an investment account set up for a minor under the Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA) based upon your state of residence. So unlike popular education accounts such as a 529 plan, you don’t have to be 18 years old or older to own them.

For that up-and-coming financial genius in your life, a custodial account is set up for a minor with money that is gifted to the child. The assets held in the account are owned by the minor under his or her name and social security number. And, the money can be used for any purpose, not just tuition, as long as it’s legally used for the benefit of the child.

The account is administrated by a custodian (usually a parent), who will manage the account for the minor’s benefit until he or she reaches the age of majority (18 or 21 depending on the state).

For the parent, a custodial account not only lets you manage your child’s assets, it provides a gift tax advantage (up to the maximum contribution allowed)  and the flexibility to invest in any combination of investment products. Here’s how:

• You can contribute up to $15,000 per person annually.

• The first $1,050 in earnings is tax-free, the next $1,050 of earnings is taxed at the child's tax rate, and the earnings over $2,100 is taxed at the adult's tax rate.

• You can invest in stocks, ETFs, mutual funds, bonds, and up to level 2 options trading.

• You can withdraw the money for any purpose without time restrictions, as long as it’s for the benefit of the minor.

• When the maximum allowed contribution exceeds $15,000, a gift tax could be incurred.

To enroll and learn more about a Firstrade custodial account, go here.

Investing With a Conscience: Socially Responsible ETFs Explained

We’ve talked before in previous posts about the great potential upside of Exchange-Traded Funds (ETFs) Remember, at Firstrade, all of our 2,300 ETFs are commission free and we make it easier to select the right ones for you.

In the current market, ETFs — baskets of stocks, bonds or commodities — have become increasingly valuable investment tools for self-directed investors seeking greater portfolio diversification, reduced risk, increased flexibility and tax efficiency through exchange-traded investing. Investors can choose from a wide array of funds in virtually any sector, industry or asset class.

A particular segment of the ETF market includes so-called “socially responsible” ETFs, which are becoming increasingly popular with investors interested in combining a sound investment strategy while supporting funds that adhere to social, moral or environmental standards, among others. A socially responsible ETF generally will track ethically sound companies, such as those adhering to only the highest standards of corporate governance and citizenship.

Many of these ETFs are an excellent way to invest around themes. For instance, funds may track companies that seek to advance the role of women through gender diversity or those that emphasize the protection of the planet through a commitment to reducing their carbon footprints. Additional examples of socially responsible ETFs include those tracking companies with proven reputations for supporting social causes and giving back to their communities.

What you will surely not find in any socially responsible ETFs are “sin stocks” including those in gambling, tobacco, alcohol and gun industries that socially responsible investors believe are “bad” for society.

So, if you’re interested in socially responsible ETFs, do your homework to learn about socially responsible investing. Think about your values, and the kind of causes or social programs you would want to support. But keep in mind that you are still investing your hard-earned money so pay attention, do your research and be sure to think about diversification in your investing strategy as well.

Regardless of how you chose to invest, remember that Firstrade customers have access to more than 2,300 ETFs, including several of the leading socially responsible ETFs.

The U.S. ETF industry recently hit a milestone, recording nearly $4 trillion in assets, according to data on ETF.com. ETFs are widely expected to continue their growth in popularity, making Firstrade’s no-cost trading even more attractive and timely for investors.

Want to choose the right ETF for you? Check out our thousands of free ETFs, and start commision-free trading here.

Manage, Invest and Spend Your Money All From One Account.

Cash management accounts are becoming increasingly popular, particularly on the international scene. So, what is a CMA?

If you conduct most or all of your banking online, you’re likely familiar with the kinds of features that a CMA has to offer. Basically, it’s a cash account that combines services and benefits that are similar to checking, debit card and investment accounts under one product.

Often, CMAs are able to offer low or no fees thanks to the low overhead of online-only services and assistance. Who needs to come face-to-face with a teller anymore anyway?

In this fast-paced world, a Firstrade Cash Management Account provides you the flexibility to trade, access and spend your money all in one account. Your cash will be in the same account as your trading funds, so you won’t miss any market opportunities when it comes to trading wherever you are.

For the international market, our product is easily accessible since there is only a $100 minimum. You can trade U.S. stocks commission-free. Our CMA has no maintenance, annual or application fees. And, you get our global ATM card for international use and convenience.

How else can you benefit?

• You will have no liability for unauthorized transactions if you promptly report the loss or theft of your card and report any unauthorized transactions.

• You’re covered with free travel safety insurance if you purchase tickets through our registered travel office.

• You can speak with a Firstrade Cash Management Account specialist to learn how to set up your account, activate features and more.

To learn more about a cash management account at Firstrade, go here.