Last Chance Tax Savings Tips 2018

By Kathleen Nemetz, MBA, CFP, CDFA

Certified Financial Planner

www.life-as-planned.com

It’s the last three weeks of the year, and you are racing to juggle daily work with holiday gatherings, gift shopping and the annual ritual of sending holiday cards. Your ‘ to do’ list just keeps growing.

But wait, don’t forget to give a gift to yourself, using one of these tax savings ideas for 2018 good through December 31.

Just make a list and check it twice and decide which of these ideas will mince that tax bill. If you are clever, the extra savings can go toward your holiday fun.

Check with your accountant to see whether pushing some expenses into 2018 would be advantageous for the 2019 tax filing, or whether to push some of these into 2019, for other offsets and considerations. Don’t delay, if planning to see a tax professional. CPAs and tax preparers who provide consultation services for tax planning say they will probably be inundated with questions about the new tax code effective for the 2018 tax year. Existing clients will have top priority among those requesting tax planning consultations.

The following list is provided for informational guidance only. Professional advice should be sought when any action may affect your taxation bracket or Social Security benefits.

To Lower Federal Income Taxes:

· Business Deductions. Check with your tax professional on what you need to do before Dec. 31.

· Charitable Deductions. Unless you will be still filing a Schedule A of itemized deductions, , you may not get much credit for the charitable deductions you make this year. Check on your filing status before making any larger contributions, if the tax consideration is important to you.

· Maximizing 401K Contributions. Must be done by Dec. 31. Check with your plan administrator to see how much more you can defer.

· Medical Expense Deductions, What to Pay This Year Vs. Next. The current limit for medical expense deductions is 7.5% of AGI, going up to 10 percent next year. You might weigh this in deciding in which year to pay medical bills. Prepayment this year might be wiser.

· Paying State Estimated Taxes Before the End of the Year. Check with your tax advisor to see if this would be beneficial to you depending on other considerations.

· Property Tax Deductions. You need an assessment bill to claim this one, but if you have it, prepayment may be advantageous to create another deduction. A conversation with your tax advisor may be advised as other considerations may outweigh the benefit.

· Taking Passive Losses Against Passive Income. If you have a choice when to realize a loss to net against passive income, this may make sense before Dec. 31.

· Tax Loss Harvesting. If you can take some losses to cancel out taxable gains, this may be a good way to take advantage of the current market volatility. Talk to your financial advisor to see what positions might lend themselves to this. That said, don’t let the tax tail wag the dog; do only what makes sense in the long term.

Avoiding Penalties:

Taking Required Minimum Distributions Due for 2018 by the End of the Year, Dec. 31. Respect the IRS deadlines. If you don’t, penalties could apply. If you must take a required minimum distribution, verify that it indeed has been taken from your IRA account or 401K plan.

Using Losses to Advantage:

Ira to Roth Conversions. Is a Roth Conversion right for you? This is one method even higher earners can use to convert assets for eventual tax-free treatment. There are prerequisite requirements, like a five- year holding period for the account and the payment of taxes due for the assets converted into the Roth account. If you are already retired the decision to proceed may be harder, as the payback period will be longer unless you have very high growth assets pushed into the Roth. Check with your financial and tax advisor.

Weighing the Relative Benefit of Actions Now vs. Later:

Exercising Stock Options. If you have stock options in the money and are concerned that a falling market may leave you unable to exercise, this is a consideration that might outweigh the tax choice of whether to be taxed on income or gain this year or next year. There may be a consequence of alternative minimum tax for exercise of incentive stock options. Have a conversation with your tax preparer if you are facing this choice.

Other Effects of Taking a Gain:

If you are already taking Social Security benefits, double check which if any of these tax maneuvers may adversely affect your Social security. Increases in taxable Income for 2018 for instance could increase the rate of tax on your Social security benefit. Depending on the relative advantage, you might still decide that one action outweighs the adverse effect. Review this with your tax professional or financial planner.

References: https://www.moneyhelpcenter.com/taxes/calculate/trump-tax-reform-calculator/

https://www.cnbc.com/2017/12/16/gop-tax-bill-expands-medical-expense-deduction-for-two-years.html

https://www.investmentnews.com/article/20181210/FREE/181219993/3-big-reasons-to-do-a-roth-conversion-right-now