7 Quick & Easy Year End Tax Strategies You Can Do Before December 31
Here are 7 Quick and easy tax savings strategies you can do to help reduce your 2018 income taxes.
1. Will I Be Itemizing On My 2018 Income Taxes? Decide whether itemizing is still for you
The new law greatly increases the standard deduction to $24,000 for married couples filing jointly, $12,000 for single filers. It also places new limits on itemized deductions, including a $10,000 cap on property and state and local income tax deductions. This is the very reason you should be working closely with your personal tax preparer to make the smart choices for 2018.
2. Max out on your retirement plan
The new laws don't change this advice: Think about increasing your contributions to your 403(b) 401(k), IRA, or other retirement plan through the end of the year to reach the maximum contribution amount. Great news is that the 2018 limits are increasing.
3. Cover health care costs efficiently
Both Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) could allow you to sock away pretax contributions for qualified medical expenses your insurance doesn't cover.
4. Use stock losses to offset capital gains
Now may be a good time to consider selling certain under performing investments in order to generate a capital loss before the end of the year — which could help offset the capital gains you realize when selling stocks that are performing well. In addition, you may generally deduct up to $3,000 ($1,500 if married and filing separately) of capital losses in excess of capital gains per year from your ordinary income. If your net capital losses exceed the yearly limit of $3,000 ($1,500 if married and filing a separate return), you can carry over the unused losses to the following year. Note that under the new law, investors will continue to pay long-term capital gains taxes at a rate of 0%, 15% or 20% (depending on their overall income), but with adjusted cutoffs. Married couples filing jointly and earning less than $77,200 ($38,600 for singles) will pay 0%. Married couples filing jointly earning between that and $479,000 (or $425,800 for singles) will pay 15%, while married couples filing jointly and earning $479,000 or more ($425,800 for singles) will pay 20%.
5. Make tax-free gifts
You can give as many family members as you like up to $15,000 per year ($30,000 from a married couple electing to split gifts) each without reporting it to the IRS. Generally, once the gift is made, your estate will not pay estate taxes on it and it will not be considered taxable income for the recipient. Also, the lifetime federal gift and estate tax exemption has more than doubled, to $11.18 million for individuals ($22.36 million for married couples), meaning far fewer estates will owe estate taxes.
6. Donate to your favorite charity
Charitable gifts such as cash or appreciated stock are still tax-deductible if you itemize, but not if you take the standard deduction. If you give regularly to charities, consider putting several years' worth of gifts into a donor-advised fund (DAF) for a single year — that step may make it worth your while to itemize. "Then, you can spread out the giving from the DAF over the next several years, based on your charitable intent." Another change: Taxpayers who itemize can now deduct charitable contributions of as much as 60% of their adjusted gross income, up from 50%. That could work to the benefit of, say, a retired person with significant assets and modest living expenses. Act now: To take advantage of tax benefits, you need to make most financial moves by December 31. Consult your tax advisor for more details. What Is A Donor Advised Fund?
7. Consider converting your Traditional IRA to a Roth IRA
Although there are income limits for contributing to a Roth IRA, anyone can convert all or a portion of their assets in a Traditional IRA (or other eligible retirement plan) to a Roth IRA. Why might doing so make sense? Unlike with a Traditional IRA, qualified distributions from a Roth IRA aren't generally subject to federal taxes, as long as the Roth IRA has been open at least five years and you have reached at least age 59½. However, you'll be required to pay income taxes on the amount of your deductible contributions, as well as any associated earnings, when you convert from your Traditional IRA to a Roth IRA — or, if you don't convert, when you retire and take withdrawals from your Traditional IRA.
These are just a few quick tips that you can do before the year ends. As always we are here anytime to answer any questions you have or you would like more information.