With the holidays on the horizon, you are probably checking your lists and making plans with friends and family. At this time of year, it’s important to be proactive in your tax planning, too. Even if you think your paperwork is in order or you already met with your CPA, consider taking a final look at your year-end tax planning. This review can make a difference on your 2018 tax return and set up your banking and investment accounts for the future.
Remember, this year has been especially challenging for tax planning because of the uncertainties surrounding parts of the Tax Cuts and Jobs Act. Your tax planning strategy may have changed mid-year, and guidance from the IRS is still being issued piecemeal. We are also waiting to find out if Congress extends any tax breaks at the last minute like they did this past winter.
Stay tuned for updates as we get closer to tax season. In the meantime, we’ll highlight a few reliable ways to prepare for year-end and make the most of your tax return.
Giving to Charity
Ways to donate can also be ways to save on your tax bill. For example, by giving appreciated securities like stocks, bonds, and mutual funds instead of writing a check, you avoid capital gains tax and still write off the donation. You can also bunch donations into one year rather than spreading them over several years and claim a larger deduction. Check our recent blog post for more ideas.
If you think it would be beneficial, you can prepay expenses like your mortgage. By moving your January 2019 payment to December 2018, you can claim the interest on 13 payments. That reduces your tax liability and can unlock additional deductions. For more ideas here, contact your CPA.
Recognizing Recent Changes
Did you know that the TCJA changed the top tax bracket rate to 37 percent? This was a beneficial change for high-income taxpayers, but many deductions were reduced or eliminated. You may need to adjust your withholding to account for changes to the personal exemption, standard deduction, and Child Tax Credit. If you make the changes now, your tax liability for 2019 will be more accurate and less of a headache later.
You should also be aware of the shrinking SALT deduction. The TCJA reduced this deduction to a maximum of $10,000 per year. Recently, 45 percent of Maryland residents claimed a deduction for state and local property and income taxes. If you were counting on this one, you will want to contact your CPA soon. In addition, many hoped the AMT would be eliminated with the TCJA, but it still exists in a slightly more taxpayer-friendly form. Check with your CPA if either of these changes affect you.
Lastly, we suggest that you save unreimbursed medical receipts because the medical expense deduction threshold has been reduced from 10 percent to 7.5 percent. Those costs add up quickly, and you might meet the requirements for a deduction this year.
Overall Financial Health
Beyond tax planning, consider your life circumstances and financial position. Have they changed recently? Perhaps you changed employment, added a new child to your family, or experienced a change in filing status. These are reasons to contact your CPAs sooner rather than later. They can help you navigate new tax territory and make last minute moves if needed.
You may also want to update your beneficiaries and personal budget for the new year. That includes reviewing your life and automobile insurance policies, checking your credit report, and perhaps changing your tax withholding. Your CPA can help here, too.
Taking control of your money takes time and a solid tax planning strategy. Contact our team to discuss your goals and help you start the new year off right.