The end of 2018 is quickly approaching, so it’s time to make any financial decisions to prepare for your 2018 taxes. Sharon Lassar, director of the School of Accountancy at the University of Denver’s Daniels College of Business, offers eight tax tips.
(1) Taxpayers should make sure they are on track to contribute the maximum possible amount to their 401(k) or other voluntary retirement savings accounts by year end. The maximum for 2018 is $18,500 for most taxpayers, $24,500 for those who will be age 50 or older by year end.
(2) Taxpayers should review their potential itemized deductions and determine whether they will itemize this year or not. Since their standard deduction amount has increased substantially in 2018 over what it was in 2017, taxpayers who itemized in earlier years may find that they will not be itemizing their deductions in 2018. In this case, the usual year-end advice of accelerating deductions no longer applies. In fact, taxpayers might want to defer some deductions by delaying payment until 2019. For example, in 2017, taxpayers were encouraged to try to pay their 2018 real estate taxes in 2017 because the Tax Cuts and Jobs Act limits the amount of state and local taxes that can be deducted beginning in 2018. In 2018, taxpayers will generally be better off by delaying payment of their 2019 taxes until 2019. A new Congress might restore an unlimited deduction for state and local taxes, in which case it will be better to pay those taxes after the restoration of the deduction.
(3) Taxpayers who are subject to rules for required minimum distributions from retirement accounts (i.e. those over age 70 ½) should be sure to take their required minimum distributions.
(4) Taxpayers who are not itemizing this year should consider “bunching” expenses in alternating years so that they can take the standard deduction one year and itemized deductions the next year. For example, taxpayers who are taking the standard deduction this year but who might itemize their deductions next year, might want to defer their year-end charitable gifts to January. Perhaps by making their 2018, 2019 and 2020 charitable gifts in 2019, taxpayers will be able to take the standard deduction in 2018 and 2020, but by bunching charitable gifts into 2019, it may be beneficial to itemize deductions in 2019.
(5) Taxpayers should review their flexible spending accounts for child care and medical expenses to make sure they use their balances before year end. Similarly, if a taxpayer has met the deductible under their health plan, they should consider having elective medical procedures and treatments before year end. Most health plans reset the deductibles Jan. 1.
(6) Taxpayers should review their portfolios and, to the extent they have recognized gains this year, they should consider selling securities with losses to offset those gains, plus $3,000 of ordinary income. Taxpayers cannot replace securities sold at a loss within 30 days of generating the loss; doing so would cause the loss to be disallowed.
(7) Taxpayers who make annual gifts to loved ones should be sure to make their gifts before year end to take advantage of the annual exemption from gift taxes for gifts up to $15,000.
(8) Review withholding amounts to be on track for what your projected tax liability will be in 2019.