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Year-End Tax Moves
The 2018 tax year isn't quite as "exciting" as the end of 2017. Tax reform is now in full swing with less last-minute moves necessary to precede all the changes. But there are still some year-end moves for you to consider.....
Continue keeping records just as you did before last year’s tax reform. That’s because CA & many other states have yet to conform with the IRS changes at this point. As such, many state returns will continue to be like the years prior to tax reform. Maintaining records as you always have will ensure the state tax return can be prepared correctly and no deductions are missed.
$500 “Other Dependent” Credit
If eligibility for this credit is possible (you provide at least half of support for someone who’s not your qualifying child, etc.), it’s advisable to ensure the applicable dependent’s adjusted gross income does not exceed $4,150 for the year. If income is over $4,150, eligibility is lost.
Flex Spending Accounts (FSA)
Be sure to have no more than a $500 account balance at year end in any health flex spending accounts at work (FSA). Check with your employer regarding carryover of funds if your balance exceeds thresholds to ensure funds aren’t forfeited.
Bunch medical expenses in 2018 tax year to take advantage of the current 7.5% of income limitation versus the future 10% limitation. Advance medical appointments and corresponding bill payments if this strategy is beneficial (advisable to check with tax preparer).
Small business owners should be in contact with their tax preparer to discuss monitoring income levels, in order to ensure the ability to obtain the new 20% business deduction (phaseouts begin at $315,000 taxable income and must not exceed $415,000 for married joint filers to get any deduction…$157,500 phaseout and $207,500 limit for others). Other restrictions apply. Be sure to also continue taking the 50% deduction for business meals, despite original reports that tax reform eliminated this deduction. The IRS recently clarified that only entertainment expenses have been eliminated. However, the meals deduction can still be taken if certain restrictions are met.
Gifts to Individuals
If planning to give money in excess of $15,000 to family members, friends, etc., be sure to give $15,000 prior to year-end to avoid gift tax return filing requirement. An additional $15,000 can then be given for the 2019 tax year on January 1, allowing for $30,000 to effectively be given to any individual in a two-day period. Married couples can double this amount since the $15,000 annual limit applies to each giving spouse.
Roth IRA Conversions
Consider converting Traditional IRA funds over to a Roth IRA, if your marginal tax rate is lower now under tax reform than expected later during retirement years (not recommended if current tax rate is 22%). Again, contact your tax preparer for your specific situation.
Paying Property Taxes
On the heels of our recommendation to many that they pay property taxes early last December, we’re receiving a lot of questions about that strategy for this year.
It’s important to note that the end of 2018 is not like the end of 2017, in that last year was a one-time crunch before tax reform hit. That’s because for 2018 and later tax years, the state and local tax deduction (SALT) is limited to $10,000. These “SALT” taxes are mostly made up of the state taxes withheld on W2’s, property taxes on your home, and personal property taxes such as DMV Registration License fee. This SALT tax often exceeds $10,000 annually for many folks, which is why in December of 2017 we suggested forwarding as much of these tax payments into 2017 as possible, while there was no cap.
Now that we’re in 2018, the $10,000 cap is already in place, so paying property taxes in advance does not have the same effect. With that being said, there are still some considerations here. You’ll want to look at the sum of your state taxes on your W2s (and other state tax payments such as estimates) and add that to any property taxes you’ve paid to date on your home in 2018. Then compare that to the $10,000 cap to see what you can still pay to get a deduction. If paying some of your 2019 property taxes now in 2018 still keeps you under the $10,000 cap for 2018, then it’s not a bad idea…especially if you think your 2019 state taxes will be much higher and you’ll be limited in your benefit anyway at that time.
If you have any questions regarding tax planning moves for your specific situation, don’t hesitate to contact us!
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