A Good Problem to Have

     I recently filed my 2018 taxes and got a huge shock. My tax liability was more than I ever imagined because of the following reasons: 1. I took some gains in long-held stocks during the year, 2. I have been investing in income producing stocks and CD's, 3. Many of my stocks have attractive yields in the 3-4% range, 4. Money market funds are finally starting to produce meaningful income, 5. My return had very little tax-deferring deductions like IRA's, depreciation for rentals, or business income and the deductions (expenses) that go along with it. So what can I do to lessen the tax bite? First, I ran down to my Credit Union and made my 2018 contribution to an IRA. This step alone lowered my Federal and State liability by $1600. Since I had no earned income, I had to study the tax law to find out that I could make a contribution based on my wife's income. Tax law concerning IRA's can be complex, so only trust what you read in official government publications from the IRS. I have been given faulty advice from people in the financial community so always double check to make sure you are complying with existing tax law. As a volunteer tax preparer, I always have a copy of Publication 17 on my computer desktop as a reference, just remember, the taxpayer is responsible for what goes on the tax return. The IRS allows taxpayers to make contributions to retirement plans even after the calendar year is over. You have until the filing deadline (April 15) to make a contribution for the previous year. For tax year 2019, the amount a person my age can contribute has gone up to $7000 for each person. So what can I do to ease my tax burden for 2019? Again, I will max out my IRA contributions for myself and possibly my wife (if she qualifies). Then, instead of investing in bank CD's I will start buying some tax-free municipal bond issues in my state. These bonds are free from state and federal taxation. I will also make sure to offset any gains in stocks with losses in other stocks, (last year I could not find any losing positions that I wanted to part with). Finally, my hobby gardening business will become an income producing activity, complete with deductible expenses like mileage, insurance premiums, and input costs. I don't expect to make any money for a couple of years but that is exactly the point.