Atlanta Financial Newsroom

Ten Year-End Tax Tips for 2018

AFA
November 14, 2018
Here are 10 things to consider as you weigh potential tax moves between now and the end of the year.

 

1. Set aside time to plan
Effective planning requires that you have a good understanding of your current tax situation, as well as a reasonable estimate of how your circumstances might change next year. There’s a real opportunity for tax savings if you’ll be paying taxes at a lower rate in one year than in the other. However, the window for most tax-saving moves closes on December 31, so don’t procrastinate.

2. Defer income to next year
Consider opportunities to defer income to 2019, particularly if you think you may be in a lower tax bracket then. For example, you may be able to defer a year-end bonus or delay the collection of business debts, rents, and payments for services. Doing so may enable you to postpone payment of tax on the income until next year.

3. Accelerate deductions
You might also look for opportunities to accelerate deductions into the current tax year. If you itemize deductions, making payments for deductible expenses such as medical expenses, qualifying interest, and state taxes before the end of the year, instead of paying them in early 2019, could make a difference on your 2018 return.

4. Factor in the AMT
If you’re subject to the alternative minimum tax (AMT), traditional year-end maneuvers such as deferring income and accelerating deductions can have a negative effect. Essentially a separate federal income tax system with its own rates and rules, the AMT effectively disallows a number of itemized deductions. For example, if you’re subject to the AMT in 2018, prepaying 2019 state and local taxes probably won’t help your 2018 tax situation, but could hurt your 2019 bottom line. Taking the time to determine whether you may be subject to the AMT before you make any year-end moves could help save you from making a costly mistake.

5. Bump up withholding to cover a tax shortfall
If it looks as though you’re going to owe federal income tax for the year, especially if you think you may be subject to an estimated tax penalty, consider asking your employer (via Form W-4) to increase your withholding for the remainder of the year to cover the shortfall. The biggest advantage in doing so is that withholding is considered as having been paid evenly through the year instead of when the dollars are actually taken from your paycheck. This strategy can also be used to make up for low or missing quarterly estimated tax payments. With all the recent tax changes, it may be especially important to review your withholding in 2018.

6. Maximize retirement savings
Deductible contributions to a traditional IRA and pre-tax contributions to an employer-sponsored retirement plan such as a 401(k) can reduce your 2018 taxable income. If you haven’t already contributed up to the maximum amount allowed, consider doing so by year-end.

7. Take any required distributions
Once you reach age 70½, you generally must start taking required minimum distributions (RMDs) from traditional IRAs and employer-sponsored retirement plans (an exception may apply if you’re still working for the employer sponsoring the plan). Take any distributions by the date required — the end of the year for most individuals. The penalty for failing to do so is substantial: 50% of any amount that you failed to distribute as required.

8. Weigh year-end investment moves
You shouldn’t let tax considerations drive your investment decisions. However, it’s worth considering the tax implications of any year-end investment moves that you make. For example, if you have realized net capital gains from selling securities at a profit, you might avoid being taxed on some or all of those gains by selling losing positions. Any losses over and above the amount of your gains can be used to offset up to $3,000 of ordinary income ($1,500 if your filing status is married filing separately) or carried forward to reduce your taxes in future years.

9. Beware the net investment income tax
Don’t forget to account for the 3.8% net investment income tax. This additional tax may apply to some or all of your net investment income if your modified adjusted gross income (AGI) exceeds $200,000 ($250,000 if married filing jointly, $125,000 if married filing separately, $200,000 if head of household).

10. Get help if you need it
There’s a lot to think about when it comes to tax planning. That’s why it often makes sense to talk to a tax professional who is able to evaluate your situation and help you determine if any year-end moves make sense for you.

Share This:

Share on facebook
Facebook
Share on linkedin
LinkedIn
Share on twitter
Twitter
Share on google
Google+

Radical Generosity, a Growing Family Ambition

For young and growing families, it can be hard at times to justify a commitment to charitable giving. But philanthropy can take on several forms when it comes down to it. I’ve heard it referred to as the “three T’s of giving”- time, talent and treasure. All three are clearly very valuable aspects of our lives because each are finite in their own respect. As a wealth manager, I obviously see a great deal of focus placed on the monetary side of philanthropy and my professional experience tells me that our individual perspective on personal wealth is often a driver for assessing whether it is (or feels) appropriate to give away our money or things. The more you feel as though you have yet to achieve your own financial security, the more difficult it is to be motivated to give financially. Furthermore, when having a family to provide for, the decision can be increasingly difficult but arguably more important.

Read More »

Is There “Life” after the Stretch IRA for Your Estate Plan?

In the last addition of our newsletter, my colleague Chris Blackmon covered some of the tax implications of the newly-enacted SECURE Act. As you may know, the SECURE Act (which stands for “Setting Every Community Up for Retirement Enhancement Act”) was signed into law in late December and became effective January 1st of this year. As Chris outlined, the Act makes significant changes to how retirement accounts can be funded, drawn down, and passed on to the next generation. While many of these changes have obvious tax ramifications, in this article we want to explore further the less obvious estate planning impact of these changes.

Read More »

What is the SECURE Act and does it matter to me?

The Setting Every Community Up for Retirement Enhancement (“SECURE”) Act was signed into law on December 20, 2019.  With all of the discussion in the news around the political uncertainty, impeachment, and the looming trade war, one of the largest changes to retirement savings laws in recent years was passed with very little fanfare.  However, some of the changes will be significant.  I have tried to highlight what may impact the majority of our clients and readers.

The Act has a lot of positives such as simplifying rules and making 401k plans potentially available to more workers, pushing back the RMD age, and allowing contributions to IRAs past age 70.  The negative impact I see is the elimination of the stretch IRA which is a clear move by the government to raise tax revenues by forcing money out of inherited IRAs sooner.  I will discuss in more detail below, but this should be a time to review beneficiaries and discuss whether any change in your legacy planning should be made in response to the new laws. What do you need to pay attention to?

Read More »

Yearly Archive

Author Archive