2018 Tax Updates: Part IV - Individual Year-End Tax Planning

​2019 is right around the corner and most potential strategies to reduce your 2018 tax liability expire on 12/31/18. Now is the time to review your situation and implement any potential tax saving measures. Below are a few of the most common individual planning opportunities: ​​

• If you expect to be in the same or lower tax bracket next year consider accelerating deductions into 2018 and/or deferring receipt of taxable income. If you expect to be in a higher tax bracket you may benefit from doing the reverse.  
• One way to accelerate deductions would be to increase your charitable donations prior to year-end. Any donations made before 12/31/18 will be deductible on your 2018 return. 
• The new Tax Cuts and Jobs Act (TCJA) raised the standard deduction so, depending on your individual situation, “bunching deductions” may make sense in any given year. An example of this strategy would be a taxpayer who normally gives a certain amount monthly as a charitable contribution to a specific organization. During 2018 they would make their normal monthly donations, and then on or before 12/31/18 they would “pre-pay” all of their 2019 donations to move the entire amount into 2018.
• Related to charitable donations, if you are planning on making a substantial gift you may want to donate appreciated stock.  The benefit is two-fold; you will get a deduction for the full market value of the stock AND you don’t have to pay capital gains tax on any unrealized gain. 
• Donor Advised Funds are also an option that are becoming more popular under the TCJA. Taxpayers with significant assets to donate in the future may want to consider a DAF to accelerate the deduction into the current year.
• Consider maximizing 529 Plan contributions for children and grandchildren. The funds will grow tax free, and will be distributed tax free in the future provided they are used for qualified education expenses. Bonus: Georgia residents using a Georgia Path2College 529 Plan are also eligible for a current year deduction on their state income tax return. In addition, the TCJA expanded the definition of qualified education expenses, you can now use 529 plan assets to pay for elementary or secondary school costs.
• Consider contributing to retirement accounts. 401(k) accounts are eligible for employee deferrals of up to $18,500 (plus a bonus $6,000 catch-up contribution if you are over 50) and must be deferred from your paycheck before 12/31/18. (IRA contributions can be made up until 04/15/19.)
• If you are eligible for an HSA account consider contributing to it as well.
• Harvest portfolio gains and/or losses. If you have gains in your portfolio, are eligible for the 0% capital gains rate, and expect to be subject to the higher capital gains rates in the future, you may want to sell now. Then repurchase the securities you want to keep and increase your cost basis to the new purchase price. If you have securities that are worth less than you paid for them and you are ready to reinvest the money elsewhere you may want to go ahead and sell.  “Harvesting” the capital loss before year end will allow you to offset the loss against any taxable capital gains in your portfolio. If you do harvest losses make sure that you are aware of the “wash sale” rules and wait at least 30 days if you are going to repurchase a substantially identical security.  (The wash sale rule does not apply to harvesting gains.)
• Use your Flex Plan at work. It is a “use it or lose it” account. You must use it by 12/31/18 unless your plan allows for the optional two and a half month carryover or $500 carryover provisions.
• Low to moderate income earners can take advantage of the expanded Saver's Credit.
• Consider converting a Traditional IRA to a ROTH IRA. You pay tax in the year of conversion but all future growth will be tax free.

We have also recently posted a Business Year-End Tax Planning article for business owners and the self-employed. 
 
This is general information and a brief summarization of complicated tax issues which are often subject to many exclusions and limitations. We make every effort to verify the accuracy of all information but we do not guarantee or warranty advice disseminated over the internet. Please give us a call to discuss potential strategies and ensure they make sense for your specific situation.