There are only a few business days left in the year, but still time to reduce your 2018 tax bill. Below are a few simple, easy things you can do now to save money later.
1 Maximize Retirement Savings – The most obvious move to make is to maximize your 401(k) contribution for 2018. The contribution to your 401(k) or employer’s retirement plan must be made by December 31st and will reduce your taxable income dollar-for-dollar. The maximum amount that can be contributed for 2018 is $18,500 for those under age 50 and $24,500 for those age 50 or older. Additionally, if you are self-employed, consider the establishment of a SEP IRA for 2018. Contribution limits for a SEP IRA for 2018 are 25% of compensation or $55,000. Either of these contributions will aid you in reducing your tax liability and will help you build your retirement nest egg at the same time.
2 Tax-Loss Harvesting – With the market volatility of 2018, if you have investments that have lost value, you can use those losses to offset your capital gains. Additionally, these losses can be used to offset $3,000 of ordinary income with the remainder, if any, being carried forward for future tax years until the full value of the loss has been used. In difficult years in the stock market, tax loss harvesting is a valuable tool for maximizing your after-tax return.
3 Maximize Deductions – Due to the 2018 tax reform law, fewer taxpayers will be itemizing deductions on their 2018 tax returns. The main reasons for this is that the standard deduction was doubled this year and certain deductions were eliminated. With that said, if you are itemizing deductions, you will want to consider these strategies: (a) If you own a home and have a mortgage, make an extra payment on or before December 31st so that you receive an additional deduction on this year’s tax return; (b) Add up your health-care costs for 2018. If they exceed 7.5% of your adjusted gross income, you may be able to deduct those expenses. Included within the list of health-care costs is health insurance premiums, Medicare premiums, long-term health insurance premiums, nursing home care, dental or orthodontic care and other medically related out-of-pocket expenses; and, (c) Bunch your charitable contributions together into one year. For example, if you intend to make a charitable contribution of $5,000 per year, consider giving $10,000 this year and $0.00 next year.
4 Defer Year-End Bonus – The receipt of a year-end bonus will certainly increase your tax liability for 2018 and it could have the additional negative impact of bumping you to a higher tax bracket. Knowing this, you may want to discuss this issue with your employer and see if they will agree to pay your bonus after the 1st of the year.
If I can be of assistance with any of the above recommendations, please do not hesitate to contact me at (972) 383-5300 or via email at firstname.lastname@example.org.
-Louis Shaff, CFO