Contributed by: John Daigneault CPA, Partner
It’s hard to believe, but we are officially in Q4 of 2018. With the end of the year swiftly approaching, now is a good time to think of financial planning strategies that will not only help lower your tax bill for this year but could also help set up for possible eligible deductions in future years as well.
How Will The Tax Cuts And Jobs Act Impact You?
Year-end planning for 2018 takes place against the backdrop of a new tax law: the Tax Cuts and Jobs Act (TCJA). The TCJA outlines several significant changes in the tax rules for both individuals and businesses:
New provisions in the TCJA legislation includes:
- New lower income tax rates
- Substantially increased standard deduction
- Severely limited itemized deductions and no personal exemptions
- Increased child tax credit
The TCJA also offers a watered-down alternative minimum tax (AMT), among many other changes.
TCJA guidelines offer businesses:
- Corporate tax rate is cut to 21%
- Corporate AMT is eliminated
- New limits on business interest deductions
- Liberalized expensing and depreciation rules
Additionally, there’s a new deduction for non-corporate taxpayers with qualified business income from pass-through entities.
Checklist Of Potential Tax Savings Strategies Before Year-End
Here is a basic checklist of guidelines and potential strategies based on updated tax regulations that, if you act before year-end, may help you save money come tax time. Note: not all suggestions will apply to your particular situation. Always consult with a licensed tax professional before making a final decision.
General Year-End Tax Planning Moves for Individuals
- Strategically plan long-term capital gains from sales of assets held for over one year (taxed at 0%, 15% or 20%, depending on the taxpayer’s taxable income)
- Postpone income until 2019 and accelerate deductions into 2018 if doing so will enable you to claim larger deductions, credits, and other tax breaks for 2018 that are phased out over varying levels of adjusted gross income (AGI)
- If you prefer a Roth IRA to a traditional IRA, you may want to convert traditional IRA money invested into mutual funds or beaten-down stocks
- You may also want to consider deferring any pending bonuses until early 2019 if your employer is willing to do so
- Beginning in 2018, many taxpayers who claimed itemized deductions year after year will no longer be able to do so because the basic standard deduction has been increased to:
- $24,000 for joint filers
- $12,000 for singles
- $18,000 for heads of household
- $12,000 for marrieds filing separately
Additionally, many itemized deductions have been cut back or abolished. No more than $10,000 of state and local taxes may be deducted; miscellaneous itemized deductions (e.g., tax preparation fees) and unreimbursed employee expenses are no longer deductible; and personal casualty and theft losses are deductible only if they’re attributable to a federally declared disaster and only to the extent the $100-per-casualty and 10%-of-AGI limits are met
- Some taxpayers can leverage a “bunching strategy” to pull or push discretionary medical expenses and charitable contributions into the year where they will do some tax good.
- Using a credit card to pay deductible expenses before the end of 2018 may help increase your 2018 deductions (even if you choose not to pay your credit card bill until early 2019)
- If you’re worried you may owe state and local income taxes when you file your return next year, and you will be itemizing in 2018, consider discussing an increase in withholdings of state and local taxes with your employer before year-end (total deductions limited to $10,000 per year)
- Take required minimum distributions from your 401(k), IRA, or other employer-sponsored retirement plans
- Facing a potential penalty for estimated tax underpayment? You may want to take an eligible rollover distribution from a qualified retirement plan before the end of 2018
- Consider increasing the amount you set aside for next year in your employer’s health flexible spending account (FSA) if you didn’t set aside enough for this year
- If possible, consider making a full year’s worth of deductible health savings account contributions for 2018
Finally, make gifts sheltered by the annual gift tax exclusion before the end of the year, effectively saving gift and estate taxes. This deduction applies to gifts of up to $15,000 made in 2018 to each of an unlimited number of individuals.
Contact the LMRPA Team Today
These are just a few of the many tips and strategies you can use to reduce your 2018 tax burden. At Leone, McDonnell & Roberts, PA, we partner with our clients to zero on both individual and business need to create a customized plan that maximizes tax deductions and return. Contact us today to hear more about tax-saving strategies you can make before 2018 draws to a close.