Do you see that train barrelling towards the station? The one with “2018” all over it? This calendar year is about to change in under three weeks, and most people I know couldn’t be happier about the fact.
But what that means for our DFW Area clients and friends here at Penny Morgan Tax Associates … well, ye olde clock is ticking LOUD.
And so this week, I thought I’d dive right in to our particular area of expertise and offer you some generalized considerations for the kinds of things that you can do NOW (i.e. in the next three weeks, before 12/31/18) that can ONLY be done now, and which will reduce your state and federal income tax bill.
Which is always a good thing.
So, without further ado, let’s dive in, shall we?
Six Key Year-End Tax Moves That DFW Area Folks Should Consider
“The work of the individual still remains the spark that moves mankind ahead even more than teamwork.” – Igor Sikorsky
Firstly, I should say that the following moves that I suggest are intended as generalized advice — which is to say that your particular situation might call for different moves. As such, I am a bit restricted in how strongly I can make certain suggestions.
So shoot me an email through the button at the top of the page if you want to discuss a private tax planning appointment for these year-end tax moves, and we’ll see what is available. Or you can also call us: (817) 795-9100
All that aside, here are some possible tax moves to consider before 12/31/18…
1) Double-check withholding and estimated taxes. Because the individual federal tax changes can either be reducing or increasing your particular situation, it’s hard to know how the various changes will interact with the rate reductions. But, if you are at risk of incurring penalties for underpayments, consider increasing your withholding rate in your December paychecks or bumping up an estimated tax payment. The IRS offers a withholding calculator that can help you evaluate your situation: https://www.irs.gov/individuals/irs-withholding-calculator. Regardless, if you are behind, a big jump in your final withholding can reduce penalties (which are NEVER advisable).
2) Evaluate where you are with charity giving. If you are itemizing, and you plan to give year-end gifts, there are a whole host of strategies that can deepen your charitable impact AND more pronouncedly help your tax bill at the same time. Gifts of appreciated securities can be great because the recent tax bill (the TCJA) retained the “fair market value” deduction for charitable contributions of appreciated property (like stock and real estate), and you can still avoid capital gain tax on the appreciation when you contribute appreciated property to charity outright. That way, you can avoid part of the gain tax and defer the rest if you use the property to create a life income gift.
And if you have a big chunk to give, you can “bunch” your contributions and indicate that you want the contributions to count for more than one tax year — which helps the charity, and might help your FUTURE tax bills at the same time.
3) Be careful about mortgage moves. In the past, making an additional mortgage payment was an easy way to reduce your tax, but the new tax laws lowered the amount of debt taxpayers can use to claim a mortgage interest deduction — from $1.1 million to $750,000. But there are grandfathering rules for some pre-existing mortgages in that range, and we can help you if it applies to you.
4) Catch up on retirement savings. Contributions can still be made pre-tax, which reduces taxable income dollar-for-dollar. The 2018 contribution limits are $18,500 for qualified plans and $5,500 for IRAs, with additional catch-up contribution amounts permitted for taxpayers age 50 or over at the end of the calendar year. However, what did change was that we cannot “recharacterize” a Roth conversion after 12/31 … so let’s make sure you are clear on if you want the Roth benefits or not for your IRA.
5) Consider making large purchases before online sales tax fully kicks in. If you have some large items to purchase online, here’s a good place for you to look to determine when your state will begin to require sales tax for online purchases: https://taxfoundation.org/post-wayfair-options-for-states/. Many states kick in on January 1, but others already have.
6) Don’t forget to give tax-free gifts and use your FSA funds. Both of those options reset on 1/1/19, so remember that you can give up to $15K tax-free to individuals before 12/31. And if you have FSA funds to use, make sure you take full advantage before the year ends.
That’s all I have for now from a generalized point of view. Though, of course, I reserve the right to offer you MORE advice in the next couple weeks. 🙂
And if you want to get more granular about your particular situation, well, we’re only an email or phone call away.
Until next week,
Penny Morgan Tax Associates