Article courtesy Gordon Advisors P.C.
The alteration in the standard deduction and how taxpayers have been accustomed to using it may be the single most important factor for tax planning into 2019. The increase in the standard deduction is designed to simplify taxes for millions of tax payers.
So rather than itemizing deductions, some taxpayers will instead just take the standard deduction, which has increased to $24,000 for married couples filing jointly. The IRS estimates that about 28 million taxpayers who would otherwise have itemized various deductions will be taking the single expanded standard deduction instead.
Charitable Donations
Making last minute charitable contributions could be even more effective. If your tax rate is scheduled to decrease in 2019, then your deductions are more valuable if they are claimed against this year’s income. Charitable deductions have been preserved under the new tax bill, yet is an effective way to boost your 2018 deductions on short notice.
Defer Income
While salaried workers (W2 wage earners) generally can’t choose when they get paid, business owners can often delay registering income until the following year, lowering their April tax bill in the process. Individual investors can also modify taxable income and lower capital gains realizations by selling stocks with a loss or waiting to sell stocks with a gain until 2019. But, if a lower tax rate is expected for you next year, then deferring income into 2019 might be a wise option.
Pay Some More Taxes
The new tax bill limits how much state and local taxes (SALT) individuals are able to deduct. The limit under the bill is no more than $10,000 of a combination of property taxes and either income or sales taxes. Any 2018 state and local income taxes paid ahead of time would need to be counted on next year’s taxes, according to the bill.
Unreimbursed Employee Expenses
The revised tax bill ended itemized deductions for 2018. Examples of unreimbursed expenses for employees might include tools and supplies, occupational taxes, work uniforms, union dues and expenses for work-related travel. Self-employed individuals and small business owners will still be able to deduct expenses under the revised tax bill. In addition to the above noted last minute actions before the new tax bill takes effect, here are a few common year-end practices in order to maximize tax benefits for the year
Maximize your 401(k) contributions before Dec 31st.
Participants in employer sponsored 401(k) plans have the ability to contribute up to $18,500 for 2018, along with an additional $6,000 catch up contribution for workers age 50 and older. If you’re not covered by a 401(k) plan, you may be eligible to deduct an IRA contribution of up to $5,500 for 2018, along with an additional $1,000 catch up contribution for individuals age 50 and older. Remember, there are limitations on taking IRA deductions based on income. If you’re 70½ or older and have money in an IRA, 401(k), or any type of employer sponsored retirement plan, you need to make sure that you’ve reached the Required Minimum Distribution (RMD) for the accounts. Failure to take the full, required withdrawal can result in a penalty of 50% of the amount of the RMD not withdrawn. If you turned 70 ½ in 2017, you can delay the first required distribution until April 2019, but if you do delay then the IRS requires that both the 2018 & 2019 distribution be taken in the same year (2018), thus increasing your taxable income.