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    Act Now to Reduce Your 2019 Tax Bill

    By Brandon Miller, CFP–

    Cartoonists often depict unpleasant shock by drawing characters with their eyes comically popping out of their face. That image keeps coming to mind when I hear many people’s reaction to their tax bill this year.

    Well, at least now you know what you’re dealing with, and some of the new laws can actually work in your favor. Let’s look at some ways to keep steam from blowing out of your ears over 2019’s taxes.

    Put Your Money in the Right Savings Bucket

    Where your assets are located can have a big impact on your taxes. Whenever possible, consider maxing out contributions to retirement accounts, including employer-provided plans—such as 401(k), 403(b), 457(b) and other deferred compensations plans—as well as personal retirement accounts, such as IRAs. These can help to reduce your taxable income.

    Investing in municipal bonds is another great tax reducer. “Munis” are issued by state and local governments to fund public works projects. They are considered to be a safe investment, and their rate of return is relatively low.

    So, you may not get rich, but the amount you invest will be exempt from federal taxes. In many cases, such as if you live in the state issuing the bond, your state and local taxes may be exempt, too. A bond paying 1.5%, for example, may yield closer to 2% with this tax benefit. Then there’s the cherry on top, which is that interest income is generally tax-exempt. It’s about as close to a tax-free investment as you can get. (My lawyer wants me to remind you that there are exceptions that you should consider before investing.)

    Other types of investments that can help to reduce your taxable income include annuities, Health Savings Accounts (HSAs) and 529s for education. If you are self-employed, you have a lot of acronyms that you can choose among to fund your retirement and save on taxes at the same time. Options include Solo 401(k)s, SEP IRAs, Simple IRAs and Traditional and Roth IRAs.

    Turn Your Hobby into a Side Hustle

    Speaking of self-employed, some of the new laws make this highly attractive. I’m not talking about quitting your current job and putting everything you have into that thing you’ve always dreamed about—just something small that you can do to earn extra money, or not. Let me explain.

    Say your hobby is photography. You decide to start a business putting your work on notecards and selling them on Etsy. Think of all of the things that your new business needs. Perhaps it’s a new camera—that really expensive one you’ve always wanted—a special printer, card stock, ink and more. Promoting your new venture might require business cards and ads. These are now business expenses, which you may be able to write off.

    If you spend $5,000 for supplies and earn $9,000, great. You get to deduct eligible expenses and make a couple of thousand dollars extra. But what if that’s reversed and you spend $9,000, but only earn $5,000? Good news: Losses can be written off, too!

    But wait; it gets even better. Section 199A of the new tax code means you might be able to write off 20% of your qualified income from this new business. Now that’s a tax cut!

    Rent Out a Room

    Here’s more good news: Rental property is one of those businesses that might qualify for Section 199A. If you have a second home, think about making it a vacation rental, or lease a spare room in your house to a traveling nurse who wants a short-term rental. Better yet, rent out your whole flat during OracleWorld or Dreamforce.

    Give to Charity

    My last tax-reduction tip is to be smart about your charitable giving. That might mean bunching all your charitable donations into one tax year to get you over the standard deduction, or reducing your taxable income by setting up a Charitable Remainder Trust—an irrevocable trust that can pay you income and give the assets left after you’re gone to your charity(s). For anyone over 70½ taking required minimum distributions, if you give part of that away as a qualified charitable distribution, your donation amount won’t count as taxable income.

    As always, you should consult with a tax professional when implementing any of these strategies to make sure that they work for you. With a little planning and creativity, however, next year’s tax return can be less eye-popping and more ear-to-ear grin-inducing.

    he opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. Brio does not provide tax or legal advice, and nothing contained in these materials should be taken as such. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. As always, please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.

     Brio Financial Group is a registered investment adviser. SEC Registration does not constitute an endorsement of Brio by the SEC nor does it indicate that Brio has attained a particular level of skill or ability. Advisory services are only offered to clients or prospective clients where Brio Financial Group and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Brio Financial Group unless a client service agreement is in place.

     Brandon Miller, CFP®, is a financial consultant at Brio Financial Group in San Francisco, specializing in helping LGBT individuals and families plan and achieve their financial goals.