High-net-worth taxpayers are running out of time to make strategic moves in 2019.

“Wealthy clients should avoid treating year-end planning as an afterthought,” says Suzanne Shier, wealth planning and tax strategist with Northern Trust Wealth Management in Chicago. “The Tax Cuts and Jobs Act motivated people to take action in 2018, and the election may well motivate people in 2020. Clients may lack a sense of urgency in their tax planning in the 2019 hiatus. A wait-and-see approach to planning is seldom optimal.”

Tax reform has eliminated some last-minute tax strategies and made others more critical. Clients will still want to pursue time-tested strategies—by maximizing their retirement contributions, for instance, making charitable contributions, exercising stock options and timing business expenses.

“If you have a business and if you were planning on buying a car to drive for business or [buying] that printer or computer next year, buy it before the end of the year,” says Brian T. Stoner, a CPA in Burbank, Calif.

At the same time, he adds it isn’t necessarily tax-effective “to put the money in investments now instead of buying something [deductible] you’ll buy anyway next year. You defer your tax savings a full year.”

For some people, old habits die hard. “I did find that high-net-worth clients who itemized prior to the 2017 tax act continued to itemize in 2018, although they were hurt by [the limited] state and local tax deduction, and by elimination of unreimbursed employee business expenses and miscellaneous itemized deductions,” says David Markle, CPA at Markle Wealth Management in Danielsville, Pa., and member of the Pennsylvania Institute of CPAs.

“Before the [Tax Cuts and Jobs Act], we always had to figure out how much our clients should prepay their state taxes or property taxes by December 31,” says Lawrence Pon, a CPA and certified financial planner at Pon & Associates in Redwood City, Calif. “The $10,000 [state and local tax] limitation makes this a moot point. Some clients just ask how much they need to give to get their taxes to break even.”

Year-end planning for the remaining itemized deductions, such as charitable contributions, needs particular review this year now that other deductions have disappeared, according to Scott Kadrlik, a CPA and managing partner at Meuwissen, Flygare, Kadrlik & Associates in Eden Prairie, Minn. “High-net-worth individuals will probably reach the SALT limit and may have mortgage interest limited to the new mortgage limits of $750,000, or may have much smaller or no mortgage interest to deduct,” he says.

Charitable Contributions

The new annual standard deduction of $12,200 to $24,400 has made it more tax wise to combine years of charitable donations. A client who is on the borderline, caught between the choices of either taking a standard deduction or itemizing deductions, can bunch gifts and itemize deductions in 2019 and use the standard deduction in 2020, says Shier. “Those who take [required minimum distributions] from traditional retirement accounts can make a direct distribution of up to $100,000 to a qualified charity tax-free,” she says.

“If a client normally donates $5,000 per year and cash flow is not a problem, a donation of $15,000 can be made in one year and then funds can be distributed to various organizations over three years,” says Robert Seltzer, a CPA at Seltzer Business Management in Los Angeles.

“Beware of making non-cash charitable contributions that don’t allow for a fair-market value deduction,” says Brian Schultz, a partner in Plante Moran’s wealth management tax practice in Southfield, Mich. For example, be careful donating publicly traded stocks or other marketable securities that have been held less than one year (for which the deduction is generally limited to your cost basis), or making most donations of inventory from a taxpayer’s small business.

Gifting

High-net-worth individuals should confirm that they have sufficient assets for their lifetime. Once that’s done, they can take advantage of gifting opportunities, Shier says. “The annual gift tax exclusion in 2019 is $15,000 and is a use-it-or-lose-it exclusion,” she notes. She also says that grantor retained annuity trusts are an attractive gifting strategy since there has been a decrease in the interest rate used to value gifts (the rate set by Section 7520 of the Internal Revenue Code).

The last months of the year are the time to look at recent gifts, advises Daniel Morris, a senior partner at Morris + D’Angelo CPAs in San Jose, Calif. “Did an elderly parent gift an appreciating asset, and is that elderly parent now facing a shorter life span? Consider opportunities to return the gift. Allow the elderly parent to ladder up a basis adjustment at time of death and save heirs future capital gains.”

Withholdings And Compensation

Many taxpayers got a nasty surprise last April when they found they hadn’t withheld enough, and they got a big tax bill. David Markle, in collaboration with Pamela Batch, a CPA with Batch & Company in Allentown, Pa., came up with the following recommendations:

• Make sure that withholding and estimated tax payments are enough to avoid penalties and interest to the IRS. Do that by covering 110% of your previous year’s income tax liability and 90% of your current-year liability.

• Actively manage your executive compensation to pay the lowest income tax over a two- or three-year period. This includes qualified and non-qualified stock options, deferred compensation and bonus payouts.

Retirement Accounts

Tax-deferred retirement and health-care savings contributions are subject to annual limits and are also a use-it-or-lose-it proposition. “Those who have large traditional IRAs should evaluate whether a conversion to a Roth IRA may be beneficial,” Shier says. “If asset values are lower due to market conditions, there’s an expectation that [one’s] tax rates will increase in the future and retirement assets may not be needed for lifetime spending.”

Ann Etter, a CPA/CFP with Goodney & Associates in Northfield, Minn., likes Roth conversions right now. “While it increases taxes for 2019, it decreases potential future tax burdens,” she says, adding that tax rates will likely increase after the TCJA sunsets in 2025, if not before. One common mistake people make is funding every retirement account without regard to contribution limits. “For instance, if you change jobs midyear and you maxed out your 401(k) at job one, you can’t contribute anything to your 401(k) at job two,” Etter says.

Investing

Volatile markets can create panics and buying opportunities—and potential tax savings. First, rather than sell in a low-market panic, calmly compare a portfolio’s early-2019 value with its current worth. Ultimately, it might not be prudent to liquidate everything at once. “This might cause some big capital gains,” says Michael M. Eisenberg, a CPA and personal financial specialist and principal at Squar Milner Financial Services in Encino, Calif.

“Given the 2019 volatility in the markets, high-net-worth individuals may be able to identify holdings in their after-tax portfolio that can be sold to recognize capital losses,” says Schultz from Plante Moran. “These losses can offset 2019 capital gains, with an additional $3,000 of losses able to offset other sources of income.”

Morris at Morris + D’Angelo CPAs advises people to look at qualified opportunity zones—geographic areas carved out as getting special tax treatment by the Tax Cuts and Jobs Act where the government hopes to spur economic development and job creation. “The five-year deferral and reduced rate when actually paying the tax make [it] a decent deal,” he says.